Bringing Underwater Stock Options Back to the Surface

February 11, 2009
Many companies saw their stock price significantly decline in 2008. As a result, employees of these companies may now hold stock options that are severely underwater—that is, the exercise price of the stock option exceeds the fair market value of the underlying stock. To resolve this, some companies are offering employees the chance to exchange these stock options for other forms of consideration, such as new stock options, restricted stock, restricted stock units, or cash. This update examines underwater stock option exchanges and the hurdles companies may face when implementing them.