For months, corporate governance experts have been warning of a wave of stock option repricings, once company execs realize their share prices won't be bouncing back anytime soon. But that doesn't mean companies have stopped the practice. Problem is, these new practices are just as bad for outside shareholders as the simple repricing schemes they replace. In some cases, they're even worse.
Companies know investors despise it when they reprice options.
By lowering the exercise price on options, repricings bail out employee shareholders, but leave nonemployee investors twisting in the wind. In addition, a recent survey by iQuantic, a San Francisco consulting firm, says many tech companies are actively considering several other alternatives for dealing with underwater options, including granting new options and immediate exchanges as well as traditional repricings. The problem is that such gimmicks don't get around many of the problems investors have with repricings. Providing employees with the chance to make a huge equity gain through new, lower-priced options at a time when shareholders have suffered significant losses from stock drops simply isn't fair play. What's more, companies that reprice or immediately exchange old options for new will take a significant charge to earnings.