Chicago (Feb. 17, 2004) -- Despite a booming stock market, three-quarters of Standard & Poor's 500 companies surveyed said they are planning to shift away from stock options, but not as a result of expensing according to a survey by Deloitte & Touche -- rather, they’re running out of shares for option grants.
Two-thirds (67 percent) of the 165 companies in the Deloitte survey indicated they would run out of shares within 24 months. As a result, companies will need to get investor approval to issue more shares this spring when most businesses hold their annual meetings, or at the same time next year. However, Deloitte noted that leading institutional investors, such as Vanguard and TIAA-CREF, are increasingly voting against company proposals to issue shares for long-term compensation plans because of stock dilution concerns.
And some 29 percent of senior human resources executives from 165 Standard & Poor's 500 companies polled have already made cuts in the most recent grant cycle, and 17 percent have eliminated stock options altogether, D&T reported.
According to the report, middle managers and rank-and-file employees are seeing the biggest cutbacks. While one-third of respondents are making across-the-board cuts, 48 percent are limiting option grants to management and/or executives. More than half (51 percent) will no longer make option grants to exempt employees, while 54 percent will no longer issue options to non-exempt employees.
Respondents currently are considering a wide range of alternatives to replace stock options, including cash, restricted stock, phantom stock and stock appreciation rights, Deloitte reported.
-- WebCPA staff
