Tech Companies Scaled Back on Options

By Staff Report

Jul. 8, 2004

High-tech companies decreased their use of broad-based stock option grants by 15 to 20 percent during the first four months of 2004, according to Mellon Financial Corporation.
Ted Buyniski, a principal at Mellon, says that companies are no longer just focused on the best way to pay employees. They’re basing their stock-option programs on what shareholders will allow.
On one hand, he says, “Executive levels pay packages are not changing dramatically.” At that level, corporations are replacing options with restricted stock, performance shares or cash. However between pressure from the SEC, from shareholders, and from the FASB, it’s employees further down the corporate hierarchy that are paying the price of options cutbacks. “High-tech pay is starting to look more like general industry,” Buyniski says. “General industry has never given all their employees options. The place where this happened was in technology. By turning options into a scarce resource, the industry that has been the most egalitarian in the use of options has been forced to create multiple classes of citizens,” just as general industry does.
Buyniski says that even though many tech companies are still giving options to new hires, his clients are looking for new ways to recruit and retain top talent in an option-limited environment. Some firms, he says, are looking at giving bigger bonuses; others are giving salary increases; still others are adding to benefits, such as increasing 401(k) matches.

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