Executives and Employees Drowning in Underwater Stock Options

Stock Options Underwater (Out-of-the-Money) at 34% of Top 500 Companies

Feb 13, 2008, 00:00 ET from Steven Hall & Partners

    NEW YORK, Feb. 13 /PRNewswire/ -- Senior executives, along with the
 rank and file, are sharing the pain with stockholders as market prices
 decline and accumulated values evaporate. A survey conducted by executive
 compensation consultants Steven Hall & Partners reveals stock options are
 underwater at more than one third of the largest 500 U.S. corporations*.
 Hamstrung by the inability to reprice options without shareholder approval,
 corporations may find that executives will affect their own repricing by
 jumping ship to new firms where they can take advantage of new options
 offered at today's bargain- basement prices.
     "Public companies in many industries find themselves between a rock and
 a hard place. On the one hand, they risk executive flight as the retentive
 and motivational value of options falls precipitately; on the other hand,
 they risk the ire of stockholders," said Steven Hall, Managing Director,
 Steven Hall & Partners. "While it might make sense to award new option
 tranches at the lower stock price to retain and focus employees in a
 challenging business environment, this is tempered by the fact that
 existing shareholders have also lost in the recent market and are unable to
 participate in the upside opportunity of new shares." Additionally, the
 grant of additional shares further dilutes shareholders and carries a
 costly charge to earnings.
     Among the industries most severely hit are airlines, automotives,
 financials, builders, pharmaceuticals, telecommunications and retail, while
 companies in the energy sector, utilities, iron and steel, chemicals,
 consumer staples and defense continue to offer meaningful wealth
 accumulation opportunities to employees. The company hardest hit by recent
 stock price declines was Beazer Homes USA, whose current stock price of
 $7.74 is 82 percent below the average exercise price of the 2,135,573 stock
 options currently outstanding. Second in line was healthcare services
 company Tenet Healthcare, with an average exercise price that is 79 percent
 below the current stock price.
     "This is the time when Board Compensation Committees must determine the
 best pay strategy to preserve key talent," said Steven Hall, Managing
 Director, Steven Hall & Partners. "In some cases, we find that companies
 apply a selective approach by opting to button down a few critical
 contributors and hoping for the best with the rest." According to Hall,
 immediate solutions for companies in this position include reviewing the
 corporate succession plan to identify key talent, determining what
 incentives are needed and redesigning compensation programs accordingly.
     Boards that fail to act risk opportunistic poaching, especially in more
 aggressive sectors such as Wall Street and technology.
     Steven Hall & Partners is an independent executive compensation
 consulting firm serving as outside counsel to Boards, Compensation
 Committees and management. The firm focuses solely on executive
 compensation, Director remuneration and related corporate governance
 matters. Prior to forming Steven Hall & Partners in September 2005, the
 firm's principals, Pearl Meyer, Steven E. Hall and Steven Root, served as
 Chair, President and Managing Director, respectively, of Pearl Meyer &
 Partners which they founded in 1989. For more information please visit
* Study based on a comparison of weighted average exercise prices for outstanding options disclosed in the most recently filed 10-K and current stock price. STEVEN HALL & PARTNERS Biggest Winners and Losers Percent Underwater(-) Fortune or In-the- Company Rank Industry Money(+) Ten Companies Most Underwater Beazer Homes USA 420 Home Builders -82.3% Tenet Healthcare 258 Healthcare-Services -79.1% Unisys 400 Computers -75.6% Charter Communications 409 Media -74.3% Countrywide Financial 91 Diversified Finan Serv -73.9% Circuit City Stores 215 Retail -72.8% Sanmina-SCI 230 Electronics -72.3% Blockbuster 410 Retail -67.4% Micron Technology 429 Semiconductors -66.6% Ford Motor 7 Auto Manufacturer -65.9% Ten Companies Most in the Money Peabody Energy 431 Coal 560.3% Allegheny Technologies 455 Iron/Steel 557.5% GameStop 426 Retail 481.5% Mosaic 427 Chemicals 446.4% AK Steel Holding 378 Iron/Steel 446.3% Chesapeake Energy 325 Oil&Gas 420.1% Monsanto 323 Chemicals 372.4% Reynolds American 288 Agriculture 352.7% Cummins 221 Machinery-Diversified 351.2% Amazon.com 237 Internet 327.8%

SOURCE Steven Hall & Partners