Career Tracks: In Bull Market, Options Make It Hard to Quit

Soaring prices and record profits have made stock options especially effective as a tool for retaining senior managers, experts say.

Executives looking at big potential stock payouts find it tough to move, said Peter Crist, president of the executive recruiting firm Crist Partners in Chicago.

High stock valuations help even companies marked as takeover targets to keep some of their best and brightest, said Mr. Crist; if an acquisition is imminent, some executives anticipate a boatload of money when their companies sell.

"People are becoming risk-averse," Mr. Crist said. "In less prosperous times there would be more movement" among companies.

"I've made some overtures to people who might even want to leave" except that "they're vested and the capital gains they would pay are so great," Mr. Crist added.

The percentage of companies including stock as a significant portion of pay has risen from 40% to 65% since 1994, and banking companies are in line with that trend, said David Bushley, director of national compensation practice for Coopers & Lybrand, Westport, Conn.

Nor are banks stopping at the senior executive level, he said. "Banks are pushing the options down to all employee categories, even to the teller positions," Mr. Bushley said. "They view it as both a reward and a retention issue."

Though there is no quantitative evidence that stock options breed organizational loyalty, Mr. Bushley said options clearly make it easier to stay put.

"You have to think hard and long about walking away from these grants," he said.

"It certainly gets a lot of attention when the markets move like this," said Shelley Seifert, senior vice president and director of human relations at National City Corp.

"We felt pretty good when stocks were moving 10% to 12% a year," she said, "but now stocks are moving 40% to 50% a year."

Cleveland-based National City generally offers options to only the top 850 of its 21,000 employees.

The options are among the most effective tools for employee retention, Ms. Seifert said.

Tax implications, including capital gains, generally depend on what the employee does with the stock, she said.

Most often the options are vested over two years at National City, Ms. Seifert said. An executive who leaves voluntarily before then doesn't collect.

John A. Challenger, executive vice president of Challenger, Gray & Christmas Inc., a Chicago-based outplacement company, said companies sometimes make employees sell back options. But each company's policy is different, he said, and the specifics often depend on individual agreements.

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