Bad News, Good News For CEOs Who Get Stock Options

The value of stock options awarded to CEOs plummeted by 60 percent between 2001 and 2003, according to a new proxy analysis by human resources consultants Watson Wyatt. The average value of those new stock option grants declined from $10.2 million in 2001 to $4.2 million in 2003. Meanwhile, the value of restricted stock awards increased 58 percent, and the average value of other long-term incentive awards rose 80 percent, according to Watson Wyatt. The analysis looked at CEOs who were in their jobs between 2001 and 2003 at 373 of the largest publicly traded US companies.

The consolation for CEOs was the dramatic increase in the value of their unexercised stock options from previous grants. They were up 79 percent, from a median of $6.7 million in 2001 to $12 million last year, thanks to the stock market rebound. Nevertheless, the average total value of the CEOs’ pay elements declined by about $5 million over the two-year period.
 
Ira Kay, national director of compensation at Watson Wyatt, said that the shift in stock-option value shows that companies are taking executive compensation seriously. “However, many CEOs have yet to feel the full impact of this swing, because the value of their unexercised stock options from earlier grants has skyrocketed,” Kay says.

Nevertheless, the “golden age” of stock options may be over, he says. Companies will need to find a new mix of incentives and rewards that will replace stock options as a way of keeping key executives motivated, Kay says.