Levitt: Shareholders Should OK Options

The nation’s top securities regulator warned investors Thursday about the dilutive impact of stock options on their shares and urged them to make their voices heard as the Nasdaq Stock Market considers new rules for shareholder approval of options for executives.

The New York Stock Exchange and Nasdaq currently have rules that let companies grant stock or stock options to officers and directors without shareholder approval so long as at least one-half of them go to regular employees who are not officers and directors.

“Fundamental fairness requires that shareholders have the ability to approve stock option plans that include option grants for officers and directors,” SEC Chairman Arthur Levitt said in a statement.

“In addition, shareholder approval of any plan that materially dilutes their ownership interest is a matter of basic corporate fairness.”

The Big Board has developed a plan addressing Levitt’s concerns and wants to put it into effect in conjunction with similar changes by Nasdaq, the SEC chief said.

Nasdaq, which is partially owned by the National Assn. of Securities Dealers, is soliciting public comments on alternatives to the NYSE’s proposal.

Technology companies, which saw the prices of their shares soar during the great tech frenzy, used options to attract employees. But when the market fizzled and stock prices went south, so did the value of the options.

Levitt said companies need a balance between the need to attract workers and the right of existing stockholders to protect themselves from having the value of their shares diluted.