Figures from the law firm show 78 per cent of FTSE 100 companies’ employee share options are underwater, needing an average 26.5 increase in value before they will become worth exercising. More than a quarter of a million employees’ share options are currently worthless, according to the law firm.
According to HMRC, between 500,000 and 600,000 SAYE options have been granted annually since 2005. Norton Rose says assuming that FTSE 100 companies are a broad representative sample, this suggests that approximately 230,000 options granted in 2005, 330,000 in 2006 and 430,000 in 2007 are now underwater.
David Cohen, head of the employee benefits group at Norton Rose says: “These results overall are depressing. Especially bearing in mind that most of these options would have been granted at an initial 20 per cent discount. The silver lining is that employees can abandon worthless options and simply pocket the tax-free bonus on the linked savings contract. The more fortunate will also get the opportunity to apply for new cut-price options”.
“As we would have expected our research confirms that the further back the share options were granted the higher the likelihood that they are worth exercising and the higher the gain. There are grounds for hope for employees granted share options in 2005, with 58 per cent in the money. However, this drops dramatically to 39 per cent in 2006 and just 22 per cent in 2007.”
