Stock Options? What the....??

Normally I like to know as much as possible about a topic before I start to write about it but this is going to be an exception. I've been trying to learn about stock options and at first glance they appear to be a simple concept. Beyond a point though, they appear to be clouded in mystery.

A typical definition for stock options reads like this:

The right to purchase a company's shares at a future date at an agreed price. Companies often give stock options to their executives as an incentive to improve the company's performance and boost its share price. If the share price has risen above the agreed price of the option by the time the option is exercised, the executive stands to make a considerable profit.

Most of the time the definitions go on to state that the option is usually given at the price the stock was at on the day of the stock option announcement but that it can be discounted. Everything makes sense up until this point. I look at companies and read thier insider trading numbers and you can see that so-and-so got to purchase x number of shares for so much money and you can see that a whole slew of executives bought at this price at the same time. Typically an offering like that corresponds to an important news article. This, I can understand.

This leads us to the issue that prompted this line of questioning.

On 12/5/06 an executive at a Fortune500 was given 94,235 shares of stock for $0. Even at a company with a low stock price this could represent millions of dollars. At another company an executive was given the option to buy 7000 shares of stock for 700 dollars. For the record that $0.10 per share was little over 0.2% of the price of one share of common stock for that company. No one else in the company at this time exercised this option. At yet another company earlier this year an executive bought severely discounted shares of stock in such large blocks 5 days appart that essentially the company gave him ONE MILLION DOLLARS that work week alone. I state the million dollar number because in this case the person actually did sell those shares on the same day they were recieved.

So the question this leaves me with is this. How does "discounted" get down to 0.2% or 0% of a stock's value. What have these people done to recieve millions of dollars in compensation?? Is there someplace that employees or shareholders of the companies can go to get these answers? Or, once again, is this something we need to go to our elected officials to talk about? Not that this would help at the moment because its these types of men who, most likely, got our elected officials into office in the first place. But that's something I've already talked about.

Anyway, I intend to keep looking into this so come back from time to time and hopefully I'll have more information for us all. If anyone has any insights into this topic please let me know. If you know someone who might have an idea please forward this post to them and see if we can get some answers!

Same place same time tomorrow! Have a great one!