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To: Sig who wrote (87035)	12/27/1998 9:58:00 AM
From: Mick Mørmøny	Read Replies (2) \| Respond to of 176387

Can Too Many Options Slow Down a Company? When it comes to employee stock options, it seems, there can be too much of a good thing. A new study by Watson Wyatt Worldwide, a management consulting firm in Bethesda, Md., found that those companies that grant the largest number of stock options substantially underperformed their stingier peers. The study tracked the 1997 performance of 940 companies in various industries. Watson Wyatt divided the companies into three groups, based on potential dilution to their shares if the options already granted, as well as those available for future grants, were exercised. That dilution, expressed as a percentage of shares outstanding and commonly referred to as "overhang," was a hefty 18.7 percent for the top third of the companies surveyed. This group returned a median of just 13.5 percent to shareholders in 1997. By contrast, the middle third of the companies surveyed, whose shares would be diluted by just 10.6 percent if all the options were exercised, returned a median of 16.9 percent. And, it seems, the chief financial officer can be too parsimonious with options as well. The bottom third of companies surveyed, with potential share dilution of just 5.7 percent, returned 16.2 percent, more than the spendthrifts, to be sure, but still less than the middle group. "Very high overhang lowers returns; very low overhang hurts returns," said Ira T. Kay, global practice director of executive compensation consulting at Watson Wyatt. The options glut has raised the hackles of institutional investors, especially those with holdings in the high-technology industry, which tends to grant relatively more options to employees. nytimes.com