Stock Option Grants for CEOs Make Sense

If I was a CEO of one of Graef Crystal’s survey companies--and I am not--I might take a bit of offense to his outlandish attempt to compare CEOs and “would-be killers” (“CEOs and Incentives: The Myth of ‘Pay for Performance,’ ” Jan. 8). Sorry, but I had some difficulty swallowing his comparison of “pay for performance” and capital punishment.

Mr. Crystal cited an obscure study he conducted of 72 companies where he attempted to link the size of an initial stock option grant and performance. I don’t buy the argument. I’m not even sure what argument is being made.

Most stock option grant programs that I am familiar with provide participants with a “grant” of option tied to a stock grant price. The stock grant price is normally the market price of the stock at the time of the grant. The participant has an incentive to add value to the company by increasing the value of the company stock beyond the grant price. This provides him or her the opportunity to exercise the options and realize the difference between the market price at the exercise date and the original grant price. Even if the initial options are granted at a $0 grant price, the CEO realizes his or her primary financial gain through the appreciation of the market price of the stock.

Is the initial size of the grant relevant, as Mr. Crystal seems to be arguing? Only if it represents an unreasonable portion of the overall market capitalization of the company. This analysis was not presented in his article.

On balance, an option grant program where the CEO influences and shares in the enhanced market value of a company seems a good deal for the company’s shareholders and a good deal for the CEO.

JIM DODENHOFF

Culver City