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May 7, 2003
Sacramento, CA – The California State Teachers’ Retirement
System today released recommendations by Graef Crystal for reform of executive
stock option plans. The paper, commissioned by CalSTRS, details what Crystal
calls “the perfect stock option plan.” Crystal’s recommendations
will aid CalSTRS in future executive compensation proxy votes and discussions
with companies regarding corporate governance best practices.
“Investors are reeling from the bombardment of tales of such executive
compensation abuses as lavish stock options and protected pension plans,”
said Jack Ehnes, CalSTRS Chief Executive Officer. “This report details
clear standards for stock option plans and gives valuable insights into
addressing the current investment crisis around this issue.”
Crystal contends the inherent problems in current option plans would
be substantially mitigated if a board of directors adopted such recommendations
as:
- Timing option grants on a regular, periodic basis on the same schedule
each year
- Making options repricing economically equivalent
- Hiring an independent compensation consultant to report directly to
the board compensation committee
Other recommendations include indexing the strike price of stock options,
charging earnings for the cost of stock option grants and having options
carry dividend equivalents.
Crystal worked as an executive compensation consultant for more than
20 years, personally advising hundreds of major companies. He is a columnist
and TV commentator for Bloomberg News Service and has edited his own newsletter
on executive pay. Crystal is a frequent contributor to major publications
and has written six books, including In Search of Excess: The Overcompensation
of American Executives and What Are You Worth? He has also served as a
consultant to the U.S. Securities and Exchange Commission and the Financial
Accounting Standards Board.
CalSTRS, with a $90 billion portfolio, is the nation’s third largest
public pension fund. It administers retirement, disability and survivor
benefits for California’s public school educators in grades kindergarten
through community college, serving more than 715,000 members and benefit
recipients.
 Perfect
Stock Option Plan
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