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Offering Stock Options

Have stock options lost their sparkle? Maybe--but this compensation tool can still be useful if you know how to do it right.

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This story appears in the December 2006 issue of Entrepreneur. Subscribe »

It's not the first beating stock options have taken in the press, and it likely won't be the last. But the fury over new options expensing, which has more than 100 companies under internal or federal investigation for illegal or unethical options backdating, has many people wondering if this compensation tool has lost its luster.

If small-cap CEOs are any measure, the answer may be yes. The top dogs have been taking fewer options, according to research prepared for Entrepreneur by compensation research firm Equilar Inc. Among companies with fewer than 100 employees and more than $1 million in revenue, the prevalence of stock option grants for the chief executive fell from 52.2 percent in 2003 to 45.5 percent in 2005, though the median value of the options rose over that three-year period. By contrast, the use of restricted stock doubled among these companies, from 12 percent to 24.6 percent.

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