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To: maceng2 who wrote (202115)	11/5/2002 5:31:07 AM
From: maceng2	Respond to of 436258

Study warns on stock option plans news.ft.com By Tony Tassell, Investment Correspondent Published: November 4 2002 23:29 \| Last Updated: November 4 2002 23:29 The US corporate "infatuation" with using shares and options to reward staff reached record levels in 2001, according to a survey. The potential "overhang" of shares and options granted to staff among the 350 largest US companies rose to a median level of 15 per cent of all shares, said the survey by Mercer Resource Consulting. The total overhang, representing shares reserved for outstanding grants to staff plus those available in the future as a percentage of outstanding common shares, rose above 75 per cent for some companies. The five companies with the highest overhangs, according to the survey, were Goldman Sachs with 91.9 per cent, Bear Stearns 86.5 per cent, Lehman Brothers 79.3 per cent, Merrill Lynch 58.6 per cent and Toll Brothers, with 55.6 per cent. The next five are Delta Air Lines, with 53.4 per cent, Morgan Stanley Dean Witter 44.6 per cent, NCR 41.9 per cent, Stanley Works 39.2 per cent and Analog Devices, with 37.6 per cent. Many options granted to staff may never be converted after sharp falls in the stock market, as their exercise price is well above current share prices. However, Mercer says the overhang has been steadily rising in recent years from 13.3 per cent in 2000, 10.7 per cent in 1997 and around 6 per cent in the early 1990s. "Companies used to regard 10 per cent of common shares outstanding as the upper limit for overhang," said Peter Chingos, head of Mercer's executive compensation consulting practice in the US. "In fact, it wasn't long ago that shareholders would balk at approving a new or amended equity plan that would increase overhang to greater than 10 per cent." "Today, 71 per cent of the companies in our study have overhang levels higher than 10 per cent," Mr Chingos said. "This trend presents serious dilution concerns that these firms need to address." Mr Chingos said the growth in the stock overhang could be reversed sharply by proposed amendments to accounting rules by the Financial Accounting Standards Board. Potential changes include requiring companies to report stock compensation costs, and their impact on earnings per share, on a quarterly and annual basis. "If companies are required to expense their stock options, we'll see a dramatic reduction in the use of traditional stock options in favour of other forms of incentive pay."