Stock Option Expensing: A Quick Hit Survey by WorldatWork

As the list of major companies voluntarily moving toward the expensing of employee stock options begins to grow longer, WorldatWork surveyed 504 members during the week of July 15, 2002 to gauge the opinions of professionals that administer stock option plans at a time when many companies are making news with such an accounting switch.

According to the survey, many companies have not made up their minds about what they might do should legislation or regulation mandate the expensing of employee stock options. While the vast majority of respondents said it is too early to say what they might do, 10 percent said they would likely offer smaller stock option grants, 9 percent said they would probably move to more performance-based options and 8 percent said they would discontinue the practice of offering stock options to employees below the executive ranks. When asked about how they might offset the reduced use of options because of legislation or regulation requiring expensing, 46 percent said they would increase the use of variable pay programs. Twenty-three percent said they would not offset with other rewards programs.

Please indicate whether your organization is:
64%
Publicly traded
21%
Privately held
15%
Government, academic, or not-for-profit (please discontinue the survey)

Does your organization have a stock option program?
71%
Yes, stock option program
29%
No stock option program

The following questions responses are based on the 71% of respondents indicating they do have a stock option program in place in their organization.

Please indicate which of the following groups of employees in your organization are eligible to receive stock option grants.
15%
Officers and executives only
44%
Some, but not all employees (i.e., management and above)
34%
All employees are eligible for program ("broad-based")
6%
Other

Are all stock option plans offered to employees in your organization approved by shareholders, or does your organization grant stock options without shareholder approval?
42%
Not all stock options are approved by shareholders
58%
All stock options are approved by shareholders

Coca-Cola recently announced that it would begin to account for employee stock options as an expense. Where is your company regarding this subject?
54%
Currently using non-expense accounting and waiting to see if a change in stock option accounting is forced by legislation or regulation
15%
Currently using FAS 123 accounting with Black-Scholes
2%
Currently using FAS 123 accounting without Black-Scholes
19%
Currently researching/studying potential changes to stock option accounting
1%
Preparing to implement a change to adopt FAS 123 including Black-Scholes accounting method for stock options
0%
Preparing to implement a change to adopt FAS 123 using a method other than Black-Scholes accounting method for stock options
9%
Other

If legislation or regulatory action in the near future requires companies to expense employee stock options, what effect will this have on your company's practice of granting of stock options? (check all that apply)
8%
We would discontinue providing stock options to employees below the highest/executive levels
1%
We would no longer provide stock options to any employees
9%
We would shift to more performance-based stock options
10%
We would offer smaller stock option grants
7%
We would make stock option grants more infrequently
74%
It is too early to determine what our company will do
6%
We would not change our current practices

What percent of your company's stock is currently held in employee options?
Mean: 11.4%

If your organization were to begin expensing stock options, what other forms of rewards would you most likely increase usage of? (check all that apply)
7%
Base salary increases
46%
Variable pay programs
6%
Work/Life program enhancements
23%
Would not offset with other rewards
24%
Do not anticipate changing how options are expensed

Whether it occurs through a change to law, regulation or voluntary corporate movement, do you believe expense accounting for stock options will become a common practice by U.S. companies by the end of 2002?
29%
Yes
71%
No

Respondent Demographics

Industry
Manufacturing
18%
Wholesale/Retail Trade
4%
Finance/Banking
10%
Insurance
3%
Service - Non Profit
2%
Healthcare
5%
High Tech
15%
Government
3%
Business Services
9%
Transportation
2%
Utilities
3%
Oil/Gas/Natural Resources
1%
Education Services
2%
Construction/Real Estate
1%
Publishing/Newspaper
1%
Communications
3%
Other
17%

Number of Employees
Fewer than 100 employees
9%
100 to 499
8%
500 to 999
8%
1,000 to 2,499
11%
2,500 to 4,999
12%
5,000 to 9,999
17%
10,000 to 19,999
9%
20,000 and over
27%

Organizational Unit
Corporate headquarters
71%
Subsidiary/group/division
12%
Regional headquarters
2%
Plant/branch
0%
Independent consultant
1%
Consulting firm
8%
Public sector
3%
Educational
2%
Other
1%