This case is aboutÂ FINANCIAL MARKETS
PUBLICATION DATE: April 19, 1999
Gerald Weiss, Spanish VersionÂ Case Solution
Geraldwas given a 10-year options bundle with unlimited upside and a guaranteed floor of $12 million. To assurethe entire package would be worth at least $12 million after 10 years, Gerald negotiated a particular provision, which gave him the ability to “gross-up” his alternatives twice over those ten years. If the stock price fell appreciably, Gerald would be given more options (at-the-money) to bring the entire Black Scholes value of his package back up to $12 million. Because of the culture of informality of the company’s, the deal was agreed to with a handshake from the CEO, witnessed the VP of human resources and by the present CFO, but not written down.
When the stock price reduced, and Gerald requested to revalue his options bundle, the company reneged on the deal. Teaching Aim: To generate discussion about the benefits and pitfalls of mega-option grants, the issue of revaluing choices, and the conflict between protecting the financial interests of the worker and adhering to company culture.