Options under water at 34 pct of Fortune 500 -study

By Martha Graybow

NEW YORK, Feb 12 (Reuters) - Tumbling share prices have left many executives, as well as rank-and-file employees, at big U.S. companies sitting on piles of stock options that are currently worthless, a new study has found.

Stock options are "under water" -- meaning the current price of the stock has sunk below the exercise price of the options -- at 34 percent of the corporations in the Fortune 500, according to the study from executive compensation consulting firm Steven Hall & Partners.

Pearl Meyer, the consulting firm's senior managing director, said the situation creates problems for companies in hard-hit sectors such as financials, retail, home building, pharmaceuticals, automobiles and airlines that have used stock options as a compensation and retention tool for employees.

Based on closing share prices as of Friday, the Fortune 500 company hardest hit in terms of underwater options was Beazer Homes USA Inc (BZH.N: Quote, Profile, Research, Stock Buzz), whose share price of $7.74 was 82 percent below the average exercise price of the more than 2.1 million stock options currently outstanding.

The study compared weighted average exercise prices for outstanding options disclosed in a company's most recently filed annual report and Friday's stock price.

The nine other companies whose options were found to be most underwater were Tenet Healthcare Corp (THC.N: Quote, Profile, Research, Stock Buzz), Unisys Corp (UIS.N: Quote, Profile, Research, Stock Buzz), Charter Communications Inc (CHTR.O: Quote, Profile, Research, Stock Buzz), Countrywide Financial Corp CFC.N, Circuit City Stores Inc (CC.N: Quote, Profile, Research, Stock Buzz), Sanmina-SCI Corp (SANM.O: Quote, Profile, Research, Stock Buzz), Blockbuster Inc (BBI.N: Quote, Profile, Research, Stock Buzz), Micron Technology Inc (MU.N: Quote, Profile, Research, Stock Buzz) and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz).

Many companies "have senior executives and, in some cases, all employees whose grants over a number of years are all of a sudden worthless," Meyer said. She said similar declines were seen during the Internet stock crash early this decade, but the problems then were more confined to the technology sector.

"This is more broadly based than a few industries," Meyer said.