Value of New Stock Option Grants Dropped Nearly 10 Percent in 2008, Watson Wyatt Survey Finds

Full Impact of Financial Crisis Yet to Be Felt


WASHINGTON, Dec. 9  /PRNewswire-FirstCall/ -- U.S. employees saw the fair value of their new company stock option awards decline by nearly 10 percent last year, according to a recent analysis by Watson Wyatt, a leading global consulting firm.

The Watson Wyatt analysis found that, for the 643 Fortune 1000 companies that reported on new option grants in 2007 and 2008, the disclosed fair value of those grants fell by a median of 8.8 percent in 2008, compared with a 1.7 percent decrease in 2007. On aggregate, the total fair value for all the companies fell from $26.8 billion to $23 billion, a decrease of 14.2 percent.

"Some of this option decline is due to the continuing shift away from these awards to other equity vehicles such as performance shares," said Steven van Putten, senior executive compensation consultant at Watson Wyatt. "And while the impact of economic conditions certainly played a role as well, 2008 could just be the tip of the iceberg."

Overall, for the 903 Fortune 1000 companies that reported expense in both 2007 and 2008, total stock compensation expense increased by a median of 2.4 percent in 2008, compared to an increase of 10.1 percent in 2007. These compensation increases, however, are partly due to the transition provisions of Financial Accounting Standard 123(R), "Share-Based Payment." Although these provisions were first effective for the 2006 fiscal year, companies are only now starting to have a full cycle of awards reflected in their expense. In aggregate, these 903 companies experienced a total stock compensation expense decrease from $63.6 billion in 2007 to $58 billion in 2008, a fall of 8.8 percent.

  Fair value of new option grants and total compensation expense for
  F1000 companies reporting in both 2007 and 2008

                    Number of companies                Aggregate Change
                    reporting in both      Median          for All
                      2007 and 2008        Change         Companies

  Fair value of new
   option grants           643          negative 8.8%    negative 14.2%

  Stock compensation
   expense*                903               2.4%        negative 8.8%

  *Several of the companies with the largest levels of stock
  compensation expense reported large percentage reductions in
  expense, skewing the average to a negative 8.8 percent.



Industries with the steepest drops in the value of new option grants included education (negative 37.5 percent), property and construction (negative 25 percent), transportation (negative 20 percent) and health care (negative 15.9 percent). Other industries with steep drops were financial services, retail and high technology.

"Because the turmoil in equity markets was just starting to be felt in the fourth quarter of 2008, we expect to see larger changes to assumptions and stock option values in 2009," said Alan Glickstein, a senior retirement consultant at Watson Wyatt. "Another factor to look for in 2009 and beyond is how companies value their options for granting, rather than accounting, purposes. Events in the market and a heightened awareness of pay-for-performance issues are leading some companies to look at these valuations as separate issues."

  For more information about the analysis, visit: http://www.watsonwyatt.com/fas123

  About Watson Wyatt



Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,500 associates in 33 countries and is located on the Web at http://www.watsonwyatt.com/. 

DATASOURCE: Watson Wyatt



CONTACT:  Ed Emerman for Watson Wyatt, [phone],

; or Steve Arnoff of Watson Wyatt, [phone],





Web Site:  http://www.watsonwyatt.com/ 

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