There has been a spate of lawsuits involving company stock, brought by employees who believed they were misled about how well the stock was performing. Meanwhile, new accounting rules will require firms to expense stock options on their income statements beginning in their next fiscal year.

But if a new program by JPMorgan catches on, options could regain some of their cachet. Microsoft was one company to experience this. The technology company decided to stop offering stock options in favor of giving restricted stock, which are grants of shares that vest at the end of a given period if an employee remains on staff. This allowed employees to earn actual shares of Microsoft stock over time, rather than just the option to purchase stock at a set price.

With the deal, JPMorgan could trade each option it bought with a separate trade in the stock market that both hedges the bet and gives the bank a margin of profit. The move would allow employees to sell a third of their shares upfront and then the rest after two years. The price the employee would get would depend on the maturity of the options.

While this meant that Microsoft employees sold the options for below the potential full market value, the shorter maturity period also reduced the potential for dilution of company stock. Employees were still able to get cash for options that could be worthless, depending on how the stock performs in the future, he says. Fifty-one percent of the 36, eligible employees participated in the program. JPMorgan is pitching its transferable stock option program as an initiative that companies could implement on an ongoing basis.

Microsoft is not the only company to have conducted a one-time transferable stock option program. Comcast made a similar move in September Sixty-three thousand of these options owners were not employees of Comcast, and so the company wanted to give them the ability to cash out and sell their options to JPMorgan.

The program was designed to help reduce the administrative burden associated with managing the options, Seaman says. Unlike Microsoft, Comcast allowed those options owners to cash out immediately and did not truncate the value of the options.

Twenty-six percent of owners accepted the offer. Although Comcast and Microsoft chose to do one-time transferable stock option programs, JPMorgan believes that companies could offer these programs on a quarterly basis and use them as an ongoing retention tool, similar to a profit-sharing program.

Young Performers Theatre

All growing companies go through periods when their stock is underwater, and a transferable stock option program could enable these firms to continue to compensate employees during those times, he says. Observers are skeptical whether such a program would make sense for most companies.

Beal says he is skeptical about whether most boards of directors and compensation committees would see the business value of such a program versus offering restricted stock.

Also, companies would have to watch out for what kind of message that enacting such a program would send to the public. They are essentially saying that they do not believe their stock will continue to go up, says Paula Todd, managing principal at Towers Perrin. But Seaman says that there is no difference between employees selling their shares for cash and exercising their options, which they usually do as soon as they are vested.

So if companies have to expense the theoretical value of the options over time, it makes sense to deliver that value of the option to the employee, Seaman says. For companies getting ready to expense their options in the next few months, the program offers definite advantages, says George Paulin, president and CEO of Frederic W. One of the big gripes that companies have about expensing stock options is they are listing an expense that they are not necessarily realizing.

The most popular long-term incentive instrument is stock options, with 41 percent of firms surveyed offering stock options only, while 42 percent of firms have chosen to use restricted stock, performance-based long-term incentive packages or a combination of awards. Shifting away from a stock-options-only plan, firms have adopted varied approaches to delivering long-term incentive compensation.

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