• Dealing with Underwater Options: Sinking or Swimming in the Credit Crunch
  • May 11, 2009 | Author: Christina H. Medland
  • Law Firm: Torys LLP - Toronto Office
  • Many companies have stock options that are underwater (the exercise price is higher than the current share price). Substantially underwater options are generally a poor incentive because they have no value unless the share price increases dramatically. Having a large "overhang" of underwater options uses up the shares reserved under the option plan, so new options cannot be granted; this prevents a company from implementing new option-based compensation.