Options Use Continues to Decline

According to a report from Pearl Meyer & Partners based on a study of public stock filings, the largest 200 U.S. companies have reduced the use of options to a median overhang of 12.9% of outstanding shares. New annual equity awards were only at 1% of shares outstanding, about half what they were five years ago. Restricted stock, however, has shown a tenfold growth from its relatively low level six years ago. These numbers need to be evaluated carefully, however. Six years ago, hardly anyone used restricted stock, and it still is a distinct minority of overall equity compensation.

A new PriceWaterhouse global survey of large companies found that only 60% offer service-vested stock options, down from almost 100% in 2003. Nineteen percent of the companies said they were reducing the size of grants for all staff. Most companies said they were replacing the awards with restricted stock. Perhaps most surprising, the study found that the number of U.S.-based employers offering employee stock purchase plans (ESPPs) dropped from 70% to 46%, a much larger decline than other surveys have found. Copies of the study, PwC 2006 Global Equity Incentive Survey, are available by calling 720-931-7341.