WaPo on stock options

Bill Sjostrom —  15 November 2006

WaPo provided its two cents on option backdating in an editorial appearing yesterday (see here). Its solution is to rein in the use of stock options, perhaps through regulation, and instead go with restricted stock. The reason: “options are opaque” and therefore “invite abuse.” Well that’s certainly a convincing argument for stripping corporations of a widely used compensation tool, and I’m sure if we went with regulation, the government would get it just right as historically has been the case in the executive comp area (yeah, right).

2 responses to WaPo on stock options

  1. 

    The disappointing thing isn’t the intellectual laziness of the Post writers (X is a problem. Regulate it.)–it’s the economic and political illiteracy of their readers who lap up the idea that anything can be “fixed” by congressional intervention, contrary to all experience.

    It kind of reminds me of when my young kids would run into some problem that their nanny couldn’t take care of, and urge her to call me. The joke between us was “Daddy can fix anything.” My kids got over that. They grew up. WaPo’s audience (and NYT, LAT, etc.) continues to indulge their paternalistic fantasy.

  2. 

    Actually, the problem with options is that (1)so much tax and accounting benefit depends on them being at FMV, and (2) FMV of a highly volatile stock can lead to completely capricious results (you start on Jan 1 with $45 strike price, I start on Jan 31 with $35 strike price). If FMV was some rolling period (60 day average) and option were granted on 1st business each month (my made up concept), you could start to get this to work. My two cents.