1、中文 3900 字 外 文 翻 译 原文： Stock Option Repricing: Heads I Win, Tails You Lose Introduction In most publicly traded companies, stock options are a big part of executive compensation, favored as a way to bind the financial interests of executives with shareholders. Although the exercise price of these opt
2、ions is fixed at the time of grant, some companies reprice stock options when stock price drops below the exercise price. The recent downturn in stock markets has prompted many companies to jump on the repricing bandwagon ( Business Week, December11, 2000). Repricing occurs in two ways: (1) either t
3、he exercise price is lowered, or (2) the existing options are cancelled and fresh options with a lower exercise price are issued. Critics oppose repricing because managers stand to gain whether stock price goes up or down. This undermines the incentive effects of stock options by eliminating the fin
4、ancial punishment to executives whose mismanagement perhaps led to stock price decline in the first place. The ultimate irony is that repricing increases managerial compensation when managers ought to be fired for poor performance. Institutional investors view repricing as a symptom of managerial en
5、trenchment caused by ineffective corporate governance and routinely use their voting power to block repricing proposals. They are opposed to repricing because each new share granted to employees dilutes the control and returns of existing stockholders. Board of directors of repricing firms defend th
6、e practice by arguing that options far out-of-money are devoid of any motivational power, and repricing can restore managerial incentives. Another explanation, prevalent in Silicon Valley, is that repricing is necessary to retain talented employees who would be otherwise lured by rival firms. These
7、firms grant employees stock options to conserve cash and view repricing as necessary to preserve their most valuable asset human capital. An implicit assumption is that retaining these executives is essential to business survival and improved firm performance. Suggestions Theoretical literature sugg
8、ests that repricing can be an effective antidote to the problems of low employee morale and high turnover especially in firms where intellectual capital is the most important asset. However, due to weaknesses in corporate governance and dysfunctional incentives under the current regulatory regime, r
9、epricing has lost its purpose and resulted in undesirable outcomes. To mitigate the side-effects of repricing, we offer the following suggestions: (1) educate public about the true economic costs of stock options, (2) promote regulatory changes, (3) strengthen corporate governance, and (4) revise CE
10、O compensation plans. 1. Educate public about the true economic costs of stock options Many corporate boards perceive repricing as a low cost option because repricing does not require companies to record an accounting charge and there is no cash outflow. The only cost is equity dilution when options
11、 are exercised. The dilution effect can be easily offset by share repurchases. It is little wonder that the boards tend to reprice when stock prices fall. Some politicians have repeatedly made statements that employee stock options have no value if the strike price is equal to the market price on th
12、e grant date. Their statements reflect either a tremendous lack of knowledge about accounting or considerable intent to deceive. Yet, the claim that stock options have no value at the grant date seems to be widely held both within the business community and the general public. Ex ante economic cost
13、of an option is the amount of money an outside investor would pay if the company decides to sell such options rather than giving them to executives. Ex post economic cost of the option is the difference between strike price and the market price on the date options are exercised. Accounting and finan
14、ce academics can play a useful role in educating executives, directors, politicians, and the general public about the true economic costs of options. They can help corporate boards, human resource managers, and executives understand how option valuation formulas such as Black-Scholes or Binomial mod
15、els work so that those involved in designing the compensation mix realize that both stock option grants and repricing existing options are costly to the company. An increase in the awareness about the true economic costs of options will also exert pressure on policy makers to change the accounting o
16、r tax regulations to make such costs explicit and ensure that repricing firms bear these costs. 2. Promote regulatory changes Two most critical regulatory reforms needed are (1) to ensure that the cost of options is recognized explicitly in the financial statements, and (2) that there is symmetry be
17、tween accounting and tax treatments. Financial economists agree that stock options are costly. In a recent testimony to U.S. Senate Finance Committee, Federal Reserve Bank Chairman Alan Greenspan described the severe market distortions from not showing the cost of options in financial statements. In
18、 the same hearings, Nobel Laureate Professor Joseph Stiglitz talked about the misinformation in the markets and advocated that stock option costs be recognized as an expense since reasonable estimates of values are available. When options are exercised in the future, the actual cost, which is the di
19、fference between the market price and exercise price, can be determined and any discrepancy between the estimated cost at the time of grant and actual costs can be adjusted against income. If the options are not exercised, the estimated stock option cost can be reversed. This will discourage the cou
20、nterproductive behavior of giving out excess options as if they were free and encourage companies to provide executives with the right kind of incentives such as the theoretically superior indexed-options. The distinction between fixed and variable price options is absurd and so is the perpetuation
21、of repricing by the “six and one” tactic allowed under I44. Changes in the tax code are also needed to ensure symmetry between accounting and tax treatments. Specifically, if companies deduct NQOs from taxable income, they should also be required to charge it against reported income. 3. Strengthen corporate governance One obvious way to curb abusive repricing is to strengthen corporate governance.
