Are Stock Option Rescissions an Unfair Benefit?
Just which companies are doing it is a well-guarded secret, but accountants’ reports of corporate stock option rescissions so alarmed the Securities and Exchange Commission that the agency hurriedly issued new orders early this month to ensure that companies properly count the costs. Reports had filtered into the SEC indicating that some companies experiencing steep stock-price declines last year had allowed executives, and perhaps lower level employees as well, to cancel previous options-based stock purchases that had left them with deep losses. Such a cancellation would reduce a company’s options-related tax deductions, which could undermine profits or deepen losses, possibly damaging the firm’s stock price. While boards of directors see such accommodations as necessary to motivate and to keep top talent, shareholder activists and other critics see a double standard that protects insiders from the stock downturns suffered by ordinary shareholders. Rescissions thus join the list of of
