Ziff-Davis Faces Another Stock-Option Lawsuit, This Time From Ex-Staffers

Stock options can become a tricky issue when mergers and acquisitions enter the picture, according to Paul Dorf, managing director of Compensation Resources, an Upper Saddle River, N.J.-based compensation consulting firm. Some contracts provide explicit instructions about what happens to options upon a corporate change of control, he says, "but some are done with more ambiguity" - an ambiguity that sometimes works to the employer's advantage. Either way, it is common for the acquiring company to want to erase stock options at a unit it is buying, rather than take on another contingency. "Most companies will say, Why don't we let them expire and go on with life?" Dorf says.

Ten years ago, a downward repricing was considered an "absolutely horrible thing" among investors and Wall Street analysts, according to Paul Dorf, the compensation consultant. But recently, more and more companies have found it necessary to price downward in order to keep options in the money. Without commenting on the Ziff-Davis repricing specifically, Dorf does say that such a move can turn into an administrative and accounting "nightmare" as well as an investor-relations faux pas.