Yet if few would dispute the success of such fast-growing companies, investors are increasingly asking how much is enough to get top performance. Again, take Coss. His pay is so gargantuan that it dwarfs his stellar performance. Because he received shares directly, rather than options, Coss's compensation differs from that of most CEOs. But as the sheer number of options has soared, shareholder dilution is proving an unanticipated by-product.
Companies use options in part to align executives' interests with shareholders.
Instead, starting this year, companies must footnote them in their annual reports using the Black-Scholes fair value option pricing model. It takes some digging, but those footnotes provide plenty of surprises. For all the benefits that options create, they're not free. By putting more potential shares into circulation, options reduce every shareholder's slice of the earnings pie. Companies with broad-based option plans say the dilution is a small cost next to the benefit of motivating employees.