Remember the heady days of the dot-com boom when any company with a PowerPoint and a white paper could use stock options to lure product developers and drive them toward a promised IPO? The economy and the market have cooled considerably since then, and regulators have piled on rules to curb the most egregious option abuses. Although IPO action barely shows a pulse today, stock options still remain an effective incentive in a compensation strategy.

Not managing stock options correctly can get a company in trouble. Broadcom Corp. recently agreed to pay $160.5 million to settle investor claims relating to the networking and communications chip maker’s stock options accounting, as reported by the Wall Street Journal. Similarly, last month, Reuters reported that Comverse Technology Inc. settled a class-action lawsuit over stock options backdating for $225 million.

These are headlines your organization doesn’t need.

To avoid problems like these, a small but growing set of IT tool vendors are targeting one part or another of the stock options segment. For example, SVB Analytics, a leading provider of valuation services and corporate equity management solutions, this week acquired Equity Enterprise, a capitalization table and option tracking management solution for public companies, according to TheStreet.com.

An apparent leader in the option management market, at least for accounting management, is OptionEase, which also recently developed stock plan administration software. “Apparent” because the option management market doesn’t really exist as a recognized segment. There are big players like Equity Edge, part of eTrade, that handle things like valuation and others that do option accounting and reporting.

OptionEase, a SaaS player, provides tools to manage stock options. The company promises to automate calculations for valuation and forfeiture rate analysis. It also will produce the necessary disclosures for FAS 123(R) [now ASC Topic 718] and assist during audits. It provides a full audit trail.

CFOs want effective stock option management not only to avoid the hefty penalties paid by the likes of Comverse and Broadcom, but so as not to undermine the reason for having stock options in the first place, to motivate employees. “If the company gets it wrong, the person who holds the option or stock pays the penalties,” says OptionEase CEO Kim Kovacs. Ouch.

SaaS makes sense for this kind of product due to frequent rules changes in this area and the wide range of users involved in the options process. The cost of OptionEase is based on the number of option holders. A typical company may pay $10,000 a year; a small operation, $3,000.

A good source for information on options is MyStockOptions. ###