Fortune 500 companies held onto worthless stocks with hopes of investors sending prices back up again. According to FinancialWeek, these companies will have to think up a different strategy as stock options are underwater at nearly 40 percent of Fortune 500 companies. This number has increased from the one-third that had worthless stock options during the first quarter.
Compensation consultants believe that companies are looking to re-price or exchange their worthless stocks.
“Over the last several weeks, we’ve fielded a number of calls from companies about their underwater options,” said Brett Harsen, vice president at Radford, a compensation research and consulting firm, to FW. “They want to know what their choices are, and what it will take to find a solution.”
The majority of firms in trouble are financial firms, followed by automakers, retailers, and tech companies. Had Bear Stearns and Countrywide Financial still been operating independently, the number of companies in trouble would have been increased.
Companies will either trade underwater options for options with new exercise prices or swap them for restricted stock. Companies are expected to swap underwater options for restricted stock over the next year.