Stock Options: Emerging Trends.

Stock options are both more prevalent and more controversial than they were a few years ago, as many companies issuing them have discovered.

In its most recent survey of 345 member companies, released late in 2000, the National Association of Stock Plan Professionals (NASPP) found that the trend toward extending stock option grants further down the organization ladder continues. Specifically:

* Of all the companies offering stock options, nearly 44 percent pushed them all the way down to the non-exempt level in 1999, versus 34 percent in 1998.

* Companies appear to be lowering the minimum criteria for the stock plan participation (i.e., salary level or salary grade).

* Retention, competitiveness and employee ownership are the most prevalent plan objectives for all types of stock option and award plans.

In addition, the survey found that non-qualified stock options are still the most common form of equity compensations (95 percent of the responding companies currently grant NQSOs). Use of incentive stock options (ISOs) is rising, with 62 per cent of all responding companies currently granting them (nearly one half all the way down to the nonexempt level, compared to 47 percent in 1998). But just 71 percent of companies granting ISOs track disqualifying disposition, meaning that many companies are losing potentially significant tax deductions.

Repricing of options -- a red flag to many investors -- appears to be declining. Just 1 percent of those polled repriced options in 1999; whereas in 1996, 1997, and 1998, 3, 4 and 6 percent of respondents, respectively, did so. Of companies repricing in the past 10 years, fully 76 percent say they have stopped the practice since the FASB's Interpretation No. 44 became effective.