STATUS QUO: Joe CEO gets options on 1 million shares, with 200,000 of them vesting each year for five years. The exercise price is fixed at $100 a share, the stock's price on the date of the grant. After the options vest, they may be exercised at any time within the five years. Joe profits even if the stock returns 6% a year for five years--less than an investor could get on a less risky corporate bond:

Stock price annually rises: 6% 10% 14% Joe CEO pockets after 5 yrs.: $33.8 million $61.1 million $92.5 million

WALDORF'S IDEA: Same deal, with two changes. First, the exercise price goes up each year by 10%, reflecting the average expectation of investors. Second, the options that vest each year expire unless exercised within a month. Joe gets paid only if the stock returns more than 10% a year:

Stock price annually rises: 6% 10% 14% Joe CEO pockets after 5 yrs.: $0 $0 $16.4 million

Data: Chris Waldorf, BusinessWeek

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