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. In a topsy-turvy economy, nothing is quite so attractive as a sure thing. And paying cash is not only fair to employees, it's not dilutive to shareholders. In a rising stock market, using options to attract and keep employees made sense.