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Chapter 4. Jets, Parachutes, and Stealth... > Red Flag 4: If a Company Rewards Fai...

Red Flag 4: If a Company Rewards Failure by Re-Pricing Stock Options

There was a joke in Silicon Valley when the bubble burst that some companies’ stock options were so far under water, which means share prices were far below exercise prices, that they should be dubbed depth-charge options. In the view of many major investors, options that are headed to the bottom of the sea should be allowed to drown. After all, the original intent—to provide incentives for management and staff to get the company’s performance to a level where the shares would rise—had clearly failed. Unfortunately, the view in some executive suites and boardrooms was different, particularly in technology companies. Divers were sent down to rescue the options, which were then resuscitated by being re-priced or reissued.


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