Opting out: Large public companies are backing away from employee stock
option plans, while their private counterparts seem to be embracing them,
according to a recent report released by the National Center for Employee
Ownership.
One-third of the largest public companies that had employee stock option
plans in 2004 have reduced the stock held in the plans to zero or closed them
entirely by the end of 2005, according to the study. Meanwhile, from 2003 to
2006, the number of ESOPs has grown from 8,875 to 9,650, with 94 percent of
these plans at privately held companies.
The drop in public companies’ use
of the plans comes in the wake of a number of “stock drop” lawsuits involving
the likes of Enron and WorldCom. In these cases, judges ruled that employers
failed as fiduciaries of their retirement plans by allowing employees to have
concentrated investments in company stock. Private companies, however, use ESOPs
differently. They are usually a means for company owners to sell their stake to
employees.
—Jessica Marquez
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