Mellon Financial Corp. full-time employees had reason to party this month when the company’s shares closed above $45 for a tenth straight day and allowed them to cash in options worth nearly $2,300.

But the Pittsburgh company is the exception to the rule now. The recent downdraft in bank shares has stripped employee stock options at several banks of their value and left top executives wondering how to motivate their charges.

Wells Fargo & Co. offered stock options to all of its 115,000 full- and part-time employees at an exercise price of $46.50 this month. Staffers can cash in those shares in five years or when the stock hits $80, whichever comes first. Wells shares were hovering around $44 last week and closed Friday at $44.75.

At Chase Manhattan Corp., full-timers will each get 375 options if, after Jan. 19, the stock goes to $73.33 and stays there for 10 days. Chase shares closed at $39.625 Friday. Meanwhile, Bank of America Corp. options handed out Jan. 4, 1999, with a target price of $60.50 have not turned out to be a spectacular incentive. Shares in the Charlotte, N.C., company closed at $40.3125 Friday.

“I spend a lot of time in compensation committees and with boards of directors struggling with this very issue,” said Michael Corry, a principal in the Todd Organization, a national executive benefits consulting firm based in Greensboro, N.C. “It’s particularly difficult because the managers are performing but the stocks aren’t.”

“It’s a concern,” said Diane Posnak, a managing director with the Pearl Meyer & Partners executive compensation firm in New York. “There’s a tremendous amount riding on stock prices. We’re cautioning companies to be careful. Options are still a good measure, but because it’s getting to be more than half of a CEO’s package, you can have some real problems retaining people. It could make people look for jobs outside the banking industry.”

Banks felt particularly pressured to offer stock options in the early- and mid-1990s, when competition for talent heated up against investment banks, insurance companies, mutual fund firms, and other nonbank financial companies. This was partly a reaction to the bull market and forces outside the financial industry, Mr. Corry said.

In recent years there has been a movement among banks to grant options to all employees, regardless of rank. Traditionally, stock options were only part of executive compensation packages, reserved for those at the vice president level or above. But with mergers occurring regularly across the industry, options are more often being used as a way to heal wounds and grease the integration of the combined companies.

The more egalitarian approach to awarding stock options has created its own problems. Lower-level staffers feel cheated when a ballyhooed bonus program does not materialize, consultants said.

“It’s going to be hard explaining to 10,000 tellers why their options aren’t worth anything,” said Alan Johnson, a compensation consultant based in New York. If bank shares continue to be depressed, he added, “there are going to be some big issues to deal with. Many industries outside of financial services are already reassessing their stock option programs.”

Boards have several choices for dealing with options that are underwater. One solution, to lower the price at which they are exercisable, is unlikely to be favored by shareholders. “There’s resistance to it,” Mr. Corry said. Another possibility is to issue new options at a lower strike price. But this, too, is frowned upon, according to Mr. Corry, because “banks, like every other industry, don’t like dilution.”

Companies can extend the deadline by which the options have to reach their target price. But that alternative is not likely to sit well with employees who are already despairing of ever cashing in their shares.

Finally, financial institutions can buy back their own stock in order to boost their share prices. This, of course, may use up strategic capital earmarked for other purposes, like a new line of business or an acquisition.

Despite the difficulties, no one has given up on using options as an incentive. Instead, companies are combining them with other forms of deferred compensation, like profit sharing, Mr. Corry said.

One bright spot may be the collapse of technology shares. Banks and many other Old Economy companies have watched Internet start-ups snap up talent because, though cash-strapped, they offer the lure of stock options that until recently seemed to have nowhere to go but up.

“The huge stock reward employees had seen in the sky is no longer out there,” Ms. Posnak said. Banks can “be more cautious about giving out options across the board in the future.”

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