The scandal entangling dozens of US companies over the timing of executive stock options could give this favoured carrot a bad name ? had it not already been tarred by the excesses of the boom and bust years. But the furore has far-reaching implications nonetheless, for it will add to the generalised anger over executive compensation.
True, the potential to time favourably the granting of share options is far less following Sarbanes Oxley legislation. Companies are less keen on share options anyway, now that accounting rules have caught up with economic reality. But the point remains: many investors in the companies now under some sort of investigation will surely feel they were taken for a ride. Share options were not the reward for performance they were cracked up to be. Of course, even legitimately awarded share options fail this test in its purest form. Executives gain from upside potential, but often only the investors are left nursing the downside. US corporate governance could learn a thing or two from the UK, where performance criteria tend to be tougher for stock option awards and investors get to voice their displeasure with a specific vote on pay.
The share option scandal, even if it pertains to past years, compounds the general feeling that executives are far more protected from the vicissitudes of the global market than their underlings. The traditional defence for high compensation is that this is what it takes to attract talent. But it is the rank-and-file who fear for their jobs because of globalisation and worry about pension and healthcare benefits. Golden parachutes and severance packages mean the market for executives looks a lot less red in tooth and claw than some claim.