CalSTRS Unveils “The Perfect Stock Option Plan”

News release

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