Stock Options Most Often Seen at Solid Performers

June 14, 2005 ( - High-tech companies offering only stock options generally outperform those offering restricted stock as a long-term incentive, new research showed.

A news release from the Newtown, Massachusetts-based DolmatConnell & Partners, Inc. (DC&P) said the company’s research showed   that high-performing organizations were 65% more likely than low-performers to grant stock options to their CEOs as the only long-term incentive and were 39% less likely to grant restricted stock.

Conversely, low-performing companies were 32% less likely than solid performers to grant only stock options, but 63% were more likely to grant restricted stock, according to the research

Stock options link pay to performance more closely than restricted stock does, because executives benefit from stock options only if they can boost the stock price after the options are granted, the agency said. “While restricted stock does not have the negative accounting implications associated with stock options,” DC&P President Jack Dolmat-Connell said in the news release, “company decisionmakers should ask themselves what the real cost of their long-term incentive plan is, once they have factored in the ability of their incentives to drive performance.”

While DC&P’s survey found a shift from stock options to restricted stock and performance-based long-term incentive plans (LTIPs), most companies continue to offer stock options, but in combination with other incentives. DC&P found that technology companies are generally doing a good job linking pay to performance, according to the news release. Cash compensation increases were, overall, in line with revenue and net income growth.

A majority (56%) of unprofitable firms did not pay CEO bonuses in 2004, an additional signal that firms are linking pay to performance, according to the news release.

Study results are available at or by calling 617-663-4984.

DolmatConnell and Partners, Inc. is the compensation and benefits consulting arm of The Odyssey Companies, Inc.