Monday, July 17, 2006

Post 9-11 Options Grants

According to this weekend's Wall Street Journal, there were an usual number of stock options grants made immediately following 9-11:
A review of Standard & Poor's ExecuComp data for 1,800 leading companies indicates that from Sept. 17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock-option grants. The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999 and 2003.

Ninety-one companies that didn't regularly grant stock options in September did so in the first two weeks of trading after the terror attack. Their grants were concentrated around Sept. 21, when the market reached its post-attack low. They were worth about $325 million when granted, based on a standard method of valuing stock options.

Read the whole thing here (online subscription required).

The story raises some interesting issues: were the executives taking advantage of shareholders and "profiting from the tragedy"? I'd say not -- if markets are reasonably efficient, the stock prices were "fair". In some ways, it's similar to the increase in insider purchases following the 1987 market crash.

A number of prominent bloggers have weighed in on the issue:

Barry Ritholz at The Big Picture has some harsh (and, in my opinion, overheated, words to describe the executives:
What the more recent group of execs did is probably legal. It certainly isn't ethical, and it reveals them to be "lacking in moral turpitude rectitude." I wonder if there's a morals clause in any of their employment contracts.

What a pathetic group of weasels. Brain cancer is too good for these shitheads. They -- and their lapdog Boards of Directors -- should all be fired.

And Steve Bainbridge takes the other side:
First, virtually all stock options are subject to multi-year vesting requirements. Executives would not make a dime on the stock options until the options were exercised years after they were granted. Second, executives would only profit from stock options if their company's stock price eventually recovered. Granting executives stock options under the circumstances thus can be seen as a way of incenting the executives to work especially hard post-9/11.
For this one, I'd tend to agree with the good Professor.

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