Rise in Nokia share price boosts value of company's stock options

Executives can expect millions in stock option income

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The market value of the electronics manufacturer Nokia has exceeded the EUR 100 billion threshold. The previous time that the mobile phone giant's net value was in 12 digits was in the spring of 2002.
      This year alone Nokia's share price has risen by nearly 70 per cent. As a result of the increase, Nokia's stock options have also experienced a surge in value.
      Stock options are often granted as incentives to a company's management and staff, allowing the holder to buy shares at a set price. In cases where a company's stock is experiencing considerable growth, the options effectively allow their holders to buy shares at a discount.
     
Calculated according to Tuesday'sshare prices, the options issued by Nokia are worth about EUR one billion. Calculating the exact value of stock option plans is challenging, because there are numerous sub-groups within such plans. Companies do not always disclose detailed information on how the stock options are divided among the various sub-groups.
      Helsingin Sanomat calculates that the value of the stock options that have been released by Nokia has increased many times over this year. At the beginning of the year, the value of the stock options was nearly EUR 200 million.
      The calculation does not mean that Nokia's managers and employees would be in for billions in income from the options. Some of the options were cashed in by the holders years ago, and a smaller number were traded in for Nokia shares at a price that was lower than the day's quotation.
      The calculation also includes the options that are eligible for use at a future date. Their value will depend on how Nokia's share price develops.
      In any case, Nokia's management now contains a clutch of stock option millionaires, after a gap of a few years.
     
Although the value of Nokia stock options has risen considerably, the present programmes pale when set against the programmes of the late 1990s. The sharp rise in share prices in the late 1990s brought many people at Nokia extra income in the millions - even the tens of millions of Euros, in the case of a few top managers.
      Nokia's stock option programmes reached a peak value in 1999 - EUR 9 billion, or nearly ten times the present value.
      The allure of the stock options evaporated when the share price plummeted from more than EUR 50 to just over ten euros. Some of the stock options lost their value before their holders had time to benefit from them. In 2003 and 2004 the mathematical value of the stock option programmes fell to zero.
      Nokia has continued to grant stock options as an incentive throughout this decade, although since 2004 the company has increasingly used shares in the company as an incentive. Nokia staff are rewarded with shares if the company's result and turnover improve sufficiently.
     
A price can be calculated for Nokia's old stock options, because the stock options themselves could be bought and sold on the stock exchange.
      Nokia stopped listing its options apparently because the practice was confusing for investors in the United States. Finland is the only country where stock options can be bought and sold on the stock exchange.
      The market value of the stock option programme is calculated in this article as the difference between the stock market share price and the price listed for the stock options. A more precise valuation would require considering how much the value of the shares has varied, and how long a stock option is in force.
      A calculation model developed by two economists, Nobel Prize winners Fischer Black and Myron Scholes, is used to make these assessments.
     
In addition to promoting the personal wealth of Nokia staff, stock options have significance for the national economy as well. Income from stock options is taxed as earned income, which means that the state and local authorities get more than half of the total. For instance in 1999-2000, just under EUR 2 billion in stock options were converted into cash, with taxation swallowing up more than half the sum. Most of these options were Nokia incentives.
      Nokia will not say how many of the Finnish employees in the company are involved in the present stock option programmes.
      In total, 24,000 Nokia employees were involved in the programme for 2001. The next one, from 2003, involved 19,000 employees. The 2005 stock option programme was more restricted, embracing only some 5,000 Nokia employees.
      At the end of September, Nokia had 112,913 employees, including 15,047 living in Finland. The figure does not include staff at Nokia Siemens Networks.


Previously in HS International Edition:
  BREAKING NEWS: Nokia shares surge on better-than-expected Q2 result (2.8.2007)
  Nokia Q3 result exceeds all expectations; net sales of EUR 12.9 billion and EPS of EUR 0.40 (19.10.2007)
  Nokia stock buoyant on announcement of new music & games portal and N81 handset (30.8.2007)
  Nokia seeks 40% market share after posting high quarterly result (3.8.2007)

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