Equity-Based Compensation at High-Growth Companies

Abstract

Much has been written about the evils of stock option repricing as a compensation technique. The fundamental premise of repricing opponents is that the technique places employees in a superior economic position to shareholders because rewards are earned when stock prices improve but remain below historical levels. In principle, stock option repricing should be avoided where appropriate, and the practice needs to be managed to achieve fairness for all interested parties-shareholders and employees. But repricing may be necessary for business survival in many circumstances because stock options are a required compensation tool in certain industries. This article discusses the reasons why repricing will always be a potential response to stock price downturns. It also highlights the adverse ramifications of repricing under rules recently proposed by the Financial Accounting Standards Board (FASB), and proposes a strategic alternative to repricing that can meet the needs and expectations of all constituencies.