To be sure, executives still reap windfalls from options.
Qualcomm Inc Chief Executive Irwin Jacobs exercised options worth US$61.4 million last year. Citigroup's Weill got no bonus while reaping options gains of US$11.8 million. Morgan Stanley Chief Executive Philip Purcell offset a 26 percent bonus cut by exercising options worth US$14.2 million.
At more than half of S&P 500 companies that filed last year's proxy statements, chief executives had no options gains. Options, which grant the right to buy company shares at a fixed price in the future, have become worthless at many companies because the price at which the options can be converted into shares is above the market price of the stock.
American Express Co, Kraft Foods Inc, Cendant Corp and insurer Progressive Corp all said they would scale back or stop issuing options and make more grants of restricted stock and other types of equity.
Shorter vesting periods
Even companies keeping options in the compensation mix are hedging against future expense costs by granting options that expire more quickly and take longer to vest. Options at Citigroup now expire after six years rather than 10 years and begin to vest after 17 months rather than one year. At Lucent Technologies Inc, new option grants now expire after seven years and vest over a four-year period rather than three.
"Vesting periods shortened in the 1990s as the war for talent heated up. The question was how quickly you could convert to cash," said Blair Jones, head of the compensation practice at Sibson Consulting Group. "Now companies are tightening up, making people wait longer to vest and shortening terms to reduce expense if accounting rules change," she said.
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