Should your options be re-priced?

2 September 2008

1 minute read

It's sad but true that stock-related elements of bonuses paid out when times were good are now worth a lot less than intended. And in the case of underwater options, they're worth nothing at all.

Lehman Brothers, who's stock is down nearly 75% on the highs it reached in February this year, has decided to do something about it. According to The Times, it's working on plans to compensate its senior executives for their valueless options - probably by re-pricing them.

Last time we looked, Lehman's options were by no means the most underwater of the lot. However, given its current predicament it would take a near miracle for the bank's stock to reach the $35 weighted average strike price on all outstanding options at December 2007.

If you're holding options which are so far under water that they've grown large moon-shaped eyes to deal with a lack of sunlight, re-pricing will seem like a good bet. But if you're a shareholder who's already suffered thanks to the ineptitude of executives whose activities are supposed to be aligned to your interests, it doesn't look so hot.

Should banks re-price? Or shouldn't they? We want to know.

AUTHOReFinancialCareers UK

Insider Comment

Mi
Michael A
6 September 2008
There's lots of arguments involved. I would argue that repricing should at least not be discounted, for at least two reasons: The majority of staff hurt by this may not have been involved in the credit bubble at all, and so you're at the moment saying "too bad, you unlucky bastards" to potentially star performers who have done a lot of good. The other reason is that otherwise they may all quit, or at least the best, and so shareholders would be even worse off.
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dv
dvamva
6 September 2008
The re-pricing brigade are a pathetic bunch, you deserve to lose your job, company and those worthless options. If you can't stand the heat, get out of the kitchen and iron my shirts.
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Tr
Trotsky
4 September 2008
I would surely demand that if I had such options. However, it is just perverting the rationale of linking personal fortune with company's. Nobody has ever demanded raising the strike price when the share prices were a lot higher and some people were massively rich. It may be true that the share price may not be really linked to performance but that's how the game goes. Changing the rules in the middle of the game is a bit tricky. Anyway, any change should apply to all employees involved in the plan, not only the top executives. By the ways, in many institutions, these are the guys who screwed it up in the first place...
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PK
PK
4 September 2008
I want my options repriced and I want them repriced now. At the start of last year I was rich, Now I am most definitely not.
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Op
Opting out
2 September 2008
As a hard working guy who has slogged my guts out for the past few years I can tell you it's gutting to see a huge proportion of the outcome of that wiped out by idiots in business areas I had nothing to do with. Repricing has nothing to do with rewarding mistakes. It simply leaves me with what I've rightfully earned,
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