Volume 15, Nos. 6 & 7


A Sputtering Love Affair:  Stock Options Of The S&P 500, 2005  Corporate America's love affair with stock options has been winding down for years. In 2005, the passion dropped another few notches: for the S&P 500, option grants dropped 17% from 2004 levels. Fewer options were granted in 2005 than in 1995. At the same time, restricted stock continued to look like the new flame: restricted stock grants increased 22% compared to 2004 levels. Earnings misrepresentation due to suppressed reporting of stock compensation was 4% in 2005; it was 5% in 2004. One troubling trend: now facing full reporting of stock option compensation, many firms employing options are employing valuation assumptions that conveniently lower the estimated fair values of option grants - and consequently, lower their future expense. This is particularly unsettling after the wave of accelerated vestings of options observed in the past year.

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