Outlaw Stock Options? Or Just Tax Them More?

With the drums beating to outlaw stock options in France, Chief Executive Louis Gallois of EADS has an idea: How about voluntarily abandoning options for executives?

In an interview today in Le Monde, Gallois pooh-poohs option awards as a "lottery" and says he prefers restricted stock awards as a more rational means to motivate the hired help. (The full interview, in French, is here.)

Gallois should know. French authorities recently accused the hired help at his aerospace company—the corporate parent of airliner assembler Airbus, as well as some military contractors—were accused of "massive insider trading".

To address suspicions that EADS executives are trading on inside information, Gallois mused that employees receive only real shares as bonuses, and that they be required to say well in advance when they plan to sell them or be required to hold them until they leave the company.

In a brief to French prosecutors, the country's Financial Markets Authority said insiders at EADS and Airbus had sold large blocks of stock in late 2005 and early 2006. In June of 2006, EADS warned of lower profits problems with its jets; its shares plummeted 26 percent in one day.

The authority, which regulates the stock market, said it had evidence that 21 executives—including EADS' co-chief executives at the time, Noel Forgeard of France and Thomas Enders of Germany—knew that trouble was brewing and used that nonpublic information in making their decisions to sell EADS shares.

Enders denied the allegations last week.

Forgeard and his family exercised options in March 2006 at a profit of $3.2 million. He has also denied wrongdoing, according to the report.

The controversy has ignited a political debate over stock options. Francois Hollande, leader of the opposition Socialist party, called for options to be outlawed. President Nicolas Sarkozy has countered by proposing a new tax on gains from stock options.

by Mark Stein