In-Depth

Careers: Fewer Companies to Offer Stock Options

New SEC rules among the reasons fewer companies will offer the benefit next year

• By Stephen Swoyer
• 12/09/2003

These days, when given a choice between stock options and job security, many users opt for the latter. Some users say that they prefer other forms of extra-salary compensation—such as cash bonuses—even when stock options are on the table.

“I personally opt for cash [versus] stock options any day of the week, except in the case that we're talking options from a well-established company,” said George Morris, a Cisco Certified Professional, in an interview earlier this year. “You can invest and dollar-cost average bonuses year after year—you can only sell worthless stock options on eBay if someone's interested in still owning a share of WebVan!”

At the same time, fewer employers are offering stock options as a form of extra-salary compensation. In a recent salary survey conducted by MCP Magazine, for example, only 19 percent of respondents reported receiving stock options in 2003—down from 26 percent in 2001, the first year that the magazine incorporated stock option data into its survey questionnaire. That’s a decline of more than 20 percent from the 24 percent of respondents who reported receiving stock options in 2002.

There’s a chance stock offerings will continue to disappear. A Deloitte and Touche survey of 175 technology companies conducted in August found that 72 percent of firms expect to exhaust the supply of shares they’ve allocated to employee stock options programs over the next two years. More alarming still, 20 percent of firms expected to run out in one year.

“Most of the respondents indicate they expect to run out of shares for employee grants within one or two years. This might not have been a serious problem for them before, but it is now,” said the report, entitled “The 2003 Deloitte Technology Stock Compensation Survey.”

Employers are feeling the squeeze. "Shareholder activism and new SEC rules requiring shareholder approval of new equity compensation plans, as well as share increases to existing plans, has made it much harder to provide new shares," the report said.

Some employers have ditched stock options altogether. One-time stock option poster-child Microsoft Corp., for example, this summer announced it was pulling the plug on its stock options program and would instead vest its employees with shares of real stock. Over the last few years, the software giant has drastically scaled back the scope of its employee stock options program, from 304 million in 2000 to only 41 million in 2002.

At least one long-time mainframe systems programmer, a contract worker with a prominent athletic apparel company, says that while his employer didn’t used to offer stock options per se, it did allow employees to purchase company stock at 85 percent of the publicly listed price. He says that he “participated in [this program] to the max and lost a great deal of money.” The lessons of Enron, Tyco, and others learned perhaps too well, this mainframe professional admits he’s not about to get burned a second time. “Now they've revised the plan so employees can buy it at the regular price, the only benefit being no brokerage fee. I have declined to participate,” he says.

Not all users are happy about dwindling support for stock options among employers, however. One mainframe systems programmer with a prominent financial services company says he actually prefers stock options to bonuses and other forms of extra-salary compensation.

“I'd rather have stock options than a bonus or maybe even be able to convert some of my pay into stock,” he says, lamenting the fact his employer doesn’t offer stock options. “It is my opinion that I work for a good company and not only am I committed to its success. I have no problem proving it.”