After the tech stock bubble burst in 2000, lots of companies were blasted for repricing stock options awarded to their employees.
Care to guess what’s going on now?
Research firm Equilar Inc. told Bloomberg News that 114 companies, including Google and Intel, have proposed or completed plans to permit exchanges of “underwater” options since early 2008.
Options are said to be underwater when the current market price is lower than the option exercise price. In a repricing, companies are offering a do-over: Replacing worthless options with others pegged at lower prices.
At least, shareholders now have a say. Since 2003, the New York Stock Exchange has required listed companies to put repricings up for a vote.
This spring, we’re seeing lots of those, including one from Entercom Communications Corp., the radio station operator based in Bala Cynwyd.
Given the trillions of dollars of wealth destruction in the stock market over the last year, shareholders are “going to be skeptical” of options exchange programs, said David Wise, senior consultant in the New York office of Hay Group.
That said, doing so may be appropriate for some firms whose top talent could walk across the street to a competitor, he said.
Entercom wants shareholders to OK a program that would allow 207 employees to exchange their underwater options for fewer shares of restricted stock. The trade-off gives employees actual stock instead of the right to buy it.
For example, CEO David J. Field now has 765,000 options outstanding - 625,000 of them underwater. He could exchange them for 250,000 shares of restricted stock, worth a total of $270,000.
In all, employees could exchange 2.24 million options under the proposal. The exercise prices of those options range from $12.31 to $52.05. Entercom shares closed yesterday at $1.17, up 8 cents.
The company makes several arguments for the move, including restoring incentives to key employees and reducing potential for shareholder dilution.
And Entercom’s had an option exchange program before - in 2006.
Shareholders approved it with 85.2 million shares in favor and 17.7 million against.