United States:
Stock Option Overhang
Employee stock options have become increasingly controversial. They can and domotivate executives and other employees. However, they also pose a large potential dilution problem to existing shareholders. In a study just published, Stock Option Overhang - Shareholder boon or shareholder burden? Ira Kay, Watson Wyatt’s Global Practice Director for Executive Compensation examines stock option overhang ie the potential dilution from previously granted options (combined with the option available for future grants) expressed as a percentage of total shares outstanding.
The study presents data to help boards of directors and institutional investors (pension funds, mutual funds - the owners of 50 to 60 percent of corporate America) evaluate the benefits and liabilities of large amounts of employee stock options. The study also provides specific recommendations on how an appropriate level of stock plan overhang (the ‘sweet spot’) should be determined by individual companies in the overall context of human capital and business strategies.
If you would like to obtain a copy of this study, they are available through your usual Watson Wyatt consultant.
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