NCEO Issue Brief Looks at the Future of Broad-Based Stock Options
NCEO founder and senior staff member
A new NCEO issue brief titled "The Future of Broad-Based Stock Options" looks at what is now the substantial body of research on this topic. The report begins with an assessment of what impact expensing stock options and other equity will have on stock prices. There are now several empirical studies, and they all conclude the impact will be minimal or none. Studies of companies that have voluntarily expensed options, in fact, show that those with a higher dilution actually showed a stronger stock price after announcing their earnings than did companies that issued less equity to employees.
Despite these findings, companies are clearly worried about the impact of expensing, as well as new shareholder approval rules for equity plans. Several surveys have been performed to asses just how companies will respond. They all conclude that about 40% of companies will reduce or eliminate broad-based equity plans, but almost none will reduce or eliminate executive plans. Whether the 40% can sustain that intention is unclear. If their competitors maintain their plans, it may be difficult to cut back on these benefits for employees.
Finally, the report looks at research on the impact of equity plan distribution on corporate performance. Studies of broad-based plans show a consistently positive impact; studies of executive plans are at best inconsistent; an assessment of 229 of these studies shows that most find a neutral or negative relationship with increasing amounts of executive equity awards.
The issue brief is available from the NCEO for $15 to members and $25 to non-members, plus shipping.