First, options were the problem.

Now, in some eyes, the solution is the problem.

Amid a backlash against corporate excesses and the move to have them count as an expense against the bottom line, options have been losing favor with more and more companies as a way to reward chief executives.

More often than not, however, that's not translating into lower CEO pay: They're being replaced at least in part by good old cash and by restricted stock--full-value shares that typically become available to sell after a specified period of time.

Companies like them because they don't have to award as many shares, decreasing dilution. Many executives like them because they typically have at least some value regardless of performance--unlike options, which become worthless if the stock price falls.

And that, to some, is the issue with restricted stock.

"I still believe that options are the best incentive-compensation vehicle available," said Jonathan Michael, CEO of Peoria-based insurance company RLI Corp.

Options only have value if stock prices go up, he noted, while executives can benefit from time-vested restricted stock regardless.

"It's my belief you should get nothing if your stock gets cut in half," Michael said. "Restricted stock, on the other hand, only time makes those [shares] valuable to the executive."

Any concerns aside, companies continue to ratchet up restricted stock awards: Among the 100 biggest publicly traded companies in Illinois and northwest Indiana, for example, half the CEOs in 2004 received restricted stock, with a median value for those receiving grants of $1.24 million--more than twice the previous year's $552,000.

That, along with sharply bigger bonuses thanks to higher earnings and solid stock returns, helped to push their median overall compensation up 26 percent in 2004, to $4.4 million.

With growing demands that companies craft plans that emphasize pay for performance, more shareholders are pushing firms to include hurdles based on results to make options or restricted shares have any value.

Labor unions, for example, have filed more than 40 shareholder resolutions at U.S. companies asking them to include performance-based vesting requirements on options or restricted shares.

"Unfortunately, too many companies are using the time-vesting shares, which reward tenure and not performance," said Brandon Rees, an executive-compensation expert at the AFL-CIO. "You don't see enough performance requirements being attached."

`Pay for pulse'

Restricted stock usage is up sharply, though experts say most awards simply have time-based vesting, which critics deride as "pay for pulse."

"People are joining the bandwagon," said Jeffrey London, a partner at the Sachnoff & Weaver law firm in Chicago who works with boards on compensation issues. "I have not joined that bandwagon that restricted stock is better than options. I've always been against restricted stock if it's only time-vesting."

Nationally, a Mercer Human Resource Consulting study of 350 of the nation's largest public companies showed a 60 percent increase in the number of CEOs who received restricted shares from 2002 to 2004. The number of CEOs who received options, meanwhile, fell 7 percent.

Overall, the Mercer study found total median CEO pay--cash plus long-term incentives like options and restricted stock--climbed 17 percent last year, to $7 million. Bonuses increased 20 percent, to $1.5 million, reflecting the sharp jump in corporate profits last year, while salaries rose nearly 4 percent, to $975,000.