Job Hunting

Study: Stock Options Less an Option

Increasingly, companies are looking for other ways to incent senior managers.
Lisa YoonAugust 22, 2002

It seemed like a good idea at the time.

Back in the halcyon days of the mid-to-late Nineties, stock options became a standard part of executive compensation packages. The thinking? Paying a manager in part with company stock would help align that managers’ interests with those of shareholders.

Indeed, a survey released earlier this year by management consultancy Mercer showed that more than 90 percent of executive pay last year came in the form of stock options. But with the recent spate of corporate scandals — scandals often driven by the desire of some executives to keep stock prices high — many investors would just as soon see companies dismantle their executive stock option plans.

They may get their wish. According to a recent report by James A. Knight of Mercer Human Resources, some compensation committees are no longer asking “how much do we pay?” but rather “what are we paying for?”

That change in thinking may signal a shift in incentive pay, with more of an executive’s compensation being based on a company’s operating performance. Knight believes some companies will start linking compensation to business strategy goals, instead of simply paying out stock options and “hoping for the best.”

That, in turn, will likely mean greater emphasis on performance reviews — reviews that include scrutiny from a manager’s board of directors. According to Knight, many boards will be reviewing top executives’ compensation packages and asking targeted questions about how the packages related to corporate goals.

Knight says he can see the changes already, with companies turning to more objective standards to gauge performance. Other changes he’s spotted: a decreased emphasis on stock options in compensation packages, higher insurance costs for directors, and increased difficulty in recruiting directors.

“Mega-awards” for stock options and special arrangements for executives like the ones made for WorldCom’s Bernie Ebbers and Tyco’s Dennis Kozlowski, says Knight, are a thing of the past.

CFOs on the Move

SanDisk Corp. promoted VP of finance Michael Gray to CFO and SVP of finance and administration. Gray had been serving as interim CFO since March 2002. He joined SanDisk in 1995 as director of finance, then was promoted to VP of finance in 1999. Gray’s sort of a one-man finance band at SanDisk. While at the company, his responsibilities have included financial planning and analysis, treasury, SEC reporting, corporate accounting services, investor relations, insurance, and tax. He also helped oversee SanDisk’s initial public offering and two secondary equity offerings. Previously, Gray worked at Consilium Inc., ASK Computer Systems Inc., and Signetics Corp.

>> J. Robert Paulson was hired to head up the finance department at St. Paul, Minn.-based Endocardial Solutions Inc.. The biotech develops diagnostic technology for complex arrhythmias. In case you don’t take a beta blocker, arrhythmias are abnormally rapid heartbeats caused by irregular electrical activity in the heart. Prior to his new assignment, Paulson was senior vice president and general manager in the auditory products division of Advanced Bionics Corp.