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. And companies that simply issue new options without canceling old ones will dilute earnings, assuming the stock ever recovers enough for options holders to cash them in.
Investors have plenty of other reasons to despise options exchanges in particular.
Just like straightforward attempts to reprice underwater options, exchanges bail out execs out in a big way, severing the link between pay and performance. That, corporate governance experts say, removes some of the performance incentive options were intended to instill. Many companies continue to insist that repricings are essential to keep top talent in their ranks. But in today's market, when a performance incentive paid in options can sink underwater in a flash, such offerings have little power to attract or retain employees. In fact, companies that have tried repricings and exchanges concede that they have had little or no impact on attrition.