Good-News Link to Options Suggested

Timing is everything -- or is it?

A study by a shareholder advocacy firm suggests that Countrywide Financial Corp. and Occidental Petroleum Corp. have a knack for issuing favorable news releases shortly after they grant stock options to top executives.

That raises the possibility that the releases are being timed to give the stock price a boost and make the options more valuable, says Alex Higgins, compensation analyst with the nonprofit Corporate Library. But Higgins says his firm found no evidence that such timing actually occurred.

“We are not saying that this is manipulation, but we are concerned that it might be,” Higgins said. “This raises a red flag.”

Representatives of Countrywide and Occidental disputed Corporate Library’s analysis, saying that any relationship between favorable news releases and the granting of stock options was coincidental.

Mortgage lender Countrywide said in a statement that it granted options on the same date each year, April 1, “to eliminate any correlation between the granting of stock options ... and material events, including the issuance of ‘value-relevant’ press releases.”

“Countrywide takes very seriously its responsibility to its shareholders and has adopted and abides by corporate governance policies to fulfill that responsibility.”

Occidental spokesman Jan Sieving said the Los Angeles-based oil company granted options at its July directors meeting. She said the company’s share price had been rising because of higher oil prices and profit and not because of news releases issued at options time.

Stock options are rights to buy shares at a set price in the future. The holder of an option stands to make a profit if the share price rises beyond that predetermined value.

For its analysis, Corporate Library collected data on the 500 big companies that made up the Standard & Poor’s stock index from 2003 to 2005, looking for those that consistently awarded executives massive grants of stock options within 30 days of issuing market-moving news releases.

To be included in the analysis, the companies had to have chief executives who earned salaries of $1 million or more, had option grants worth more than $5 million and had received option grants within 30 days of “value-relevant,” or market-moving, news releases for three consecutive years.

Only 10 of the 500 companies met those criteria. At two of those 10 companies, the timing of news releases consistently hurt the value of the executive’s stock options. At the remaining eight companies, executives won more often than they lost.

Occidental issued three market-moving news releases within 30 days of awarding its CEO large stock options. In two of the three cases, the news boosted the value of stock options granted to executives, Corporate Library said.

At Calabasas-based Countrywide, executives were awarded options within 30 days of market-moving news five times during the period studied. In four of those cases, the value of the options rose.

The six other companies where the timing of news releases raised “red flags” were American Express Co., Cardinal Health Inc., Eli Lilly & Co., McGraw-Hill Cos., Procter & Gamble Co. and U.S. Bancorp.

Corporate Library said regulators should bar companies from issuing significant news within 30 days of granting options to executives.

“They can have a regular grant date, but it doesn’t need to be right in the middle of news releases about earnings or the CEO getting fired,” said Paul Hodgson, senior research associate at Corporate Library. “We are not really drawing conclusions from this because I don’t think we have enough companies in this group to do that. But the combination of circumstances has certainly raised some red flags for us.”

The Corporate Library analysis comes after other studies suggesting that companies are manipulating the timing of stock options -- including backdating the grant date -- to guarantee that executives profit from what is supposed to be performance-related compensation.

Regulators are investigating the timing of option grants at more than 30 public companies.