Paul: More stock options news for you, with pleasure.
Companies Given Little Time to Reprice Stock Options
NEW YORK -- Companies that want to reprice options because their stock price is depressed, but thought that they had months left to act, scrambled Monday to get the job done before Dec. 15, when favorable accounting treatment will end.
The Financial Accounting Standards Board has been moving for months to require that repriced options be recorded as an expense, just like wages, on a company's profit-and-loss statement. But in a surprise move, the board decided Friday that regardless of when the new rule is formally adopted it will be effective Dec. 15.
"The board created a narrow window to reprice -- and a trap for the uninformed," said Brian Foley, an executive compensation lawyer in White Plains, N.Y.
That narrow window was criticized by Nell Minnow, a principal at Lens Inc., an investment firm that has fought option repricings.
"The board should make its rule retroactive to Jan 1, 1998," Ms. Minnow said. "You shouldn't have a window of any kind because it creates all kinds of perverse incentives for managements to give themselves extra holiday presents."
Alan Johnson, a New York compensation consultant to companies, said that since Friday "the accounting firms have been out telling people this is the last bite at the apple."
Paula Todd, a principal at Towers Perrin, a compensation consulting company, said her company and its competitors "were counseling clients when the market dipped to not rush, to wait and see what the market was going to do because one of the problems about repricing was to do it prematurely." She added: "So, there are a lot of companies that were sitting tight, trying to be responsible, that now find themselves in a tough spot. This is one of those no-good-deed-goes-unpunished stories."
She said she worked with two companies Monday that were trying to decide if they would reprice and if they could move fast enough.
But at Mercer Management Consulting, the nation's largest compensation advice firm, not one client of its New York office had called by Monday evening to ask how to reprice before next Tuesday, said Yale Tauber, a principal.
A Towers Perrin survey, to be released soon, found that repricing was being considered by only about one in six companies that have options priced significantly above the company's current share price.
Ms. Todd and Tauber said interest in rapid repricing would be concentrated in high-technology companies that use options as the most important part of a pay package.
Stock options have become an increasingly popular way to pay executives, and even some nonmanagerial-level employees, because no expense is recorded on a company's annual profit-and-loss statement, yet the company gets an income-tax deduction. Instead, the expense is treated as a change on the company's balance sheet, where assets and liabilities are recorded.
As options have become more common, the practice of repricing them when a company's stock price falls has also spread. Some companies have repriced options three, four or five times in recent years. Since the stock market's dip over the summer, repricings have been disclosed in regulatory filings by more than 100 companies.
Timothy Lucas, the accounting board's research director, said that requiring companies to treat repriced options as an expense on their profit-and-loss statement was consistent with a 1972 opinion by the board's predecessor. That opinion held that a variable stock option plan -- in which the number of options or their strike price would be determined based on future events -- had to be treated as an expense.
"We think repricing options makes them variable," he said.
Johnson said the short deadline was part of a pattern by the board to tighten the availability of options that are not recorded as an expense. He noted that the board tried two years ago to require that all options be treated as expenses, but that fierce opposition from corporations, and a Senate vote overwhelmingly supporting the companies, persuaded the board to relent.
He said the board "is doing what all regulators do when they can't get what they want directly."
"They are rewriting the regulations to get closer to what they want," he said, adding, "The result is more confusing regulations, which creates more fees for people like me, and which is wonderful for people like me, but not for U.S. business."
nytimes.com
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