The value of unexercised stock options for chief executives at high-performing companies soared by nearly 50 percent in 2005, according to an analysis by Watson Wyatt.
Meanwhile, chief executives at weak-performing companies saw a decline of more than 50 percent in the value of their unexercised stock options.
The median in-the-money value of unexercised stock options for all CEOs in the analysis increased from $14.2 million in 2004 to $15.9 million in 2005.
Watson Wyatt based its analysis on stock option and financial data at 95 of the nation's largest publicly traded companies.
The median value of unexercised stock options soared from $19.7 million in 2004 to $29.0 million in 2005 among high-performing companies, according to Watson Wyatt. Among low-performing companies, the median value declined from $11.9 million in 2004 to $5.7 million last year.
High-performing companies returned 24.5 percent to shareholders last year, while low-performing companies had a minus 3 percent total return to shareholders. The median value of unexercised stock options declined by more than 50 percent among low-performing companies because stock options are highly leveraged and a small decline in returns to shareholders can lead to a large decrease in option value.
"As companies continue to expense their stock options, we expect to see a growing number of companies embrace other forms of incentives for their executives, such as performance-based stock," says Ira Kay, global director of compensation consulting at Watson Wyatt. "Although the vehicles may change, the goal of keeping executives motivated and engaged while effectively tying their pay to performance is as important as ever."