Have high-tech share options had their day?


By David Halstead of Deloitte & Touche

In the height of the technology boom, many high-tech companies introduced share option schemes in an attempt to attract and retain the specialised skills they needed to grow their businesses.

For a time this strategy proved successful, helping to lure technical staff from the relative security of a comfortable salary to a sometimes-lower salary, with the promise of riches via options when the company floated on the stock exchange.

But with the IPO exit door seemingly closed for the immediate future, and share values plummeting, share options have undoubtedly lost their appeal. So should the alarm bells be ringing? After all, if companies and their staff no longer have faith in the value of share options in the business, why should anyone else value the company?

The truth, however, is that staff and companies do still have confidence in the future of their businesses. But they are having to readjust their two or three year exit (cut and run?) plan to the long haul. Share options are only ever truly effective if they are introduced as part of an overall business plan, as opposed to a 'get rich quick' scheme, and, if structured correctly, they can encourage the long-term growth of a business.

Another necessary readjustment concerns the price and timing of option grants. Most options were granted when share prices were much higher (i.e. when people perceived options as having value), and yet the higher an option price, the lower the value of the option. To deliver maximum value via options, the best time to grant is when the share price is low and there's no time like the present.

So whilst share option plans may not be the quick fix to attracting top talent that they once were, companies with long-term growth ambitions would be ill-advised to write them off.

David Halstead is a Partner at Deloitte & Touche in Cambridge. Contact him by email dhalstead@deloitte.co.uk

23 June 2003

This article first appeared in Tangent, a fortnightly column offering business advice and comment


The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

Deloitte LLP