Comments on: In Defense of Repricing Stock Options

By: Adam Nash

Adam Nash — Tue, 17 Feb 2009 04:53:11 +0000

I agree with you that issuing annual grants would help ameliorate the issues here. Unfortunately, most companies still give the bulk of options up front, at hire, for new employees, with only token grants at annual reviews.

It’s a self-reinforcing pattern, because competitors do the same thing. If you decided to give largely equal grants, you’d end up “under bidding” for candidates who take promises of future grants for what they are… promises.

After all, vesting, in itself, is the promise that you will acquire more options over time, assuming your at-will employment continues to work out.

Thus, the trap remains. Large up front grants, price drops, and then the choice – to lose your best people or reprice.

By: David Cheatham

David Cheatham — Mon, 16 Feb 2009 14:46:31 +0000

Great summary and very clear arguments. The one additional point I would make, however, is that most companies grant new stock options each year. Therefore, every employee has a chance to “start over” each year with options priced at the current stock price, thereby reducing the need to reprice underwater options.

By: Bill McGonigle

Bill McGonigle — Tue, 03 Feb 2009 22:45:51 +0000

One could also imagine a secondary market into which employees with vested underwater options could sell their grants for short-term benefit, and let the market work out what those grants are actually worth, and give the Company a way out of the problem without taking any charges.

Just to drive home your point, though, stock grants don’t just make employees aligned with shareholders, stock grants make employees shareholders. That’s a good thing.

By: Christopher Gutierreez

Christopher Gutierreez — Tue, 03 Feb 2009 06:59:25 +0000

Great article. I think you made the point very clear. Mediocre employees may hang on tight in a downturn, but the top talent is usually very mobile. Doing nothing is probably going to do the opposite of what you want.

I like your stock grant idea, tho I believe it might result in employees merely getting less stock when the price is high. This could leave you with a similar problem as the current options plans. That is, the number of stocks might be small, hence the number of stocks times the price might be small. In that case, a downturn might require giving out additional stock.

There’s no perfect solution, but it good to get more ideas and perspectives. The media doesn’t do a good job on this one.