Stock options have been a part of executive pay at major U.S. corporations for approximately 100 years. They have had an important role for approximately 70 years, starting in the 1950s. They have gone through periods of extraordinary popularity (e.g., the 1990s) and have been less popular during periods when the stock markets were in the doldrums. They survived the change in accounting rules (2006) that now require them to be a charge against earnings. Today’s column examines this history and takes a look at where options are today.1
History of Options
The First Half Century. Professional management of major U.S. corporations emerged in the early part of the 20th century. Unlike heirs to family businesses, these professional managers ordinarily did not have a “stake” in the business. Profit incentives and, to a limited extent, rights to purchase stock (including, in some cases, stock options) were awarded to some executives to provide an incentive based on the performance of the employer.
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