orgtheory.net

Brayden

The media can’t get enough of those duplicitous corporate executives who continue to astound the world with their creativity in the use of stock options. The WSJ reported over the weekend that after 9/11 many boards of directors granted stock options to executives to take advantage of the dropping prices.

A Wall Street Journal analysis shows how some companies rushed, amid the post-9/11 stock-market decline, to give executives especially valuable options. A review of Standard & Poor’s ExecuComp data for 1,800 leading companies indicates that from Sept. 17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock-option grants. The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999 and 2003…

There’s nothing illegal about granting options after the market plunges. But acting so quickly after a national tragedy drove down stocks shows the eagerness of some companies to increase their executives’ potential wealth. These grants also offer important new fodder for an already fractious debate over what constitutes the proper use of options in executive compensation.

As the authors state, there’s nothing illegal about what was done here. And, some might argue, getting options directly after 9/11 wasn’t even optimal timing as the market continued to dip for several days. The real problem with this practice is how it reflects on the companies that granted the options. While executives are, theoretically, supposed to maximize shareholder value, incidents like these make it clear that this priority isn’t at the top of their list. Shareholders come in a distant second to padding one’s own wallet with cheaply obtained wealth.

As Larry Ribstein opines, the problem with granting options in this way is one of image management.

Maybe this is back to “optics” — – whatever was really going on, directors must pay attention to how it looks.