A recent survey conducted by executive compensation consultants Steven Hall & Partners reveals that stock options are underwater at more than a third of the largest 500 U.S. corporations. The problem is that the market experienced a sudden downturn and left executives unable to reprice their options without shareholder approval. Since that is hard to get, there has been a growing number of executives leaving their companies to seek employment at other company's offering options at today's bargain-basement prices.

The situation leaves many boards in a difficult position since they have to take action to retain executives but do not want to upset shareholders. Executives require more shares in order to stay on board while additional shares being issued dilutes shareholders and carries a costly charge to earnings. The industries most affected are airlines, automotives, financials, builders, pharmaceuticals, telecoms and retailers. It is up to boards now to evaluate the best options and mediate between shareholders and management.