Repricing options on every dip is ridiculous. That motivates employees to screw things up for awhile, then make things run smoothly, and so forth to get maximum volatility. How does that benefit investors? The whole option situation is completely out of hand. The biggest problem is that options don't appear on the face of financials so companies are motivated to use them as a substitute for other motivational tools. A company would be stupid for example to offer profit sharing, which would reduce earnings, instead of options, which are invisible (note - they are not free, just invisible).
Options should be limited to key people, and should be long term options at a relatively low strike price. That way the option recipient benefits most by assuring the steady appreciation of the companies stock. Also, then there is no need to re-price the options. Suppose that an employee received some options last year that expire in 2001 with a strike price of 20. Should this continue to motivate the employee, or does the strike price need to be reduced? 20 is still an achievable target from here, especially given the time involved. And what about the guy who got options two years ago with a strike price of 10? He just took a beating, but so did investors. Options are a special reward for earning money for investors, not a matter of right, so this is fair.
Carl |
