The Advisors' Blog

With underwater options in the news, companies that award this form of equity may want to consider what to do if the awards were granted at a market peak and/or the company’s stock price has been declining. This Semler Brossy newsletter points out that this issue can affect the broader executive team – not just the CEO. It suggests questions for boards:

1. Where in the organization are options best aligned with the compensation philosophy?

2. Even if options are underwater now, what is the upside potential under various rebound scenarios, and how do we best communicate that to recipients?

3. If your options are meaningfully underwater, is an exchange program worth exploring, or does the signal it sends outweigh the benefit? Related resource: What to do about deep underwater stock options.

4. If you were to move away from options, what vehicle would better capture performance without abandoning program rigor?

The newsletter cites to a recent study that found roughly a third of stock options granted since 2023 are now underwater – especially in retail and healthcare. The Semler Brossy team also notes that only about 45% of S&P 500 companies are granting options these days – but they haven’t disappeared. With such a big potential upside, they are still a vehicle at companies large and small. See our “Stock Options” Practice Area for more resources.

– Liz Dunshee