BANKING FINANCE

Sterling Savings & Loan wanted to give its directors an opportunity to buy stock in the Irvine thrift, but it could only offer stock options in a holding company because a state regulation prohibits directors from getting stock options in S&Ls; themselves.

Sterling Homes, the thrift’s parent firm, earns substantial revenues from its activities as a home builder, an area in which the S&L; directors have no involvement. As a result, the parent company decided to create a special holding company that would own only the S&L; but would, in turn, be owned by Sterling Homes. That way, directors could legally get stock options in the special holding company.

The new holding company was barely formed when state regulators decided to remove the ban on stock options for directors.

The proposed regulation, now winding its way through the approval process, would allow S&Ls; to give options to directors as long as the amount offered does not exceed 20% of all shares outstanding, said William J. Crawford, commissioner of the state Department of Savings and Loan.

“Originally, I didn’t want it because I thought, basically, for directors to cut themselves a deal for stock might not give employees enough incentive,” Crawford said. “But I learned that 9% of companies nationwide offer directors stock options and 31% more are thinking about doing it. I thought maybe it’s coming and we can’t hold the line on it.”

He warned directors, however, that “employees should be taken care of first.”