“Stock options are all too often not working as they should, says a critic whose identity may surprise some people,” writes Floyd Norris in today’s New York Times.

” ‘If managers can reap profits from their options while shareholders are losing some or all of their equity stake, the options create conflicting, not aligned interests,’ complained Harvey L. Pitt, the chairman of the Securities and Exchange Commission, in a speech last night at Northwestern University.”

“What should be done? First, he thinks all option plans for senior executives should be subject to approval by shareholders. Then, he says, a panel of outside directors should decide on option grants.”

“Finally, he suggests that ‘officers should be required to demonstrate sustained, long-term growth and success before they can actually exercise any of their options.’ That would, he argues, ‘help abolish perverse incentives to manage earnings, distort accounting or emphasize short-term stock performance.’ “

“The ideas are good ones, but having them adopted will not be easy. The first one, requiring shareholder approval, would seem to be the most obvious. But companies have resisted it furiously. It will take a lot of pressure from Mr. Pitt to persuade the stock exchanges to force that reform on companies whose shares they list.”

“But then the effort becomes harder. To really align the interests of executives and shareholders means that both groups have to face the risk of declining shares. The S.E.C. could go back to the rule it imposed until 1991, which said top executives had to hold shares obtained through options for at least six months. In a telephone interview last night, Mr. Pitt said that idea was ‘on the table,’ but stopped short of endorsing it.”