Human Capital & Careers

IBM’s New Underwater Options

The company's share price must rise at least 10 percent before these options are in the money.
Stephen TaubFebruary 26, 2004

IBM announced a new executive stock option plan that doesn’t guarantee recipients an immediate profit. The strike price for these options will be set at 10 percent above the market price on the day they’re granted, reports the Associated Press.

The new plan, which applies to chairman and chief executive officer Samuel J. Palmisano and the top 300 IBM executives worldwide, takes effect immediately, says the wire service. IBM wants to expand the program to include all 5,000 executive-level employees in the next year or so, according to The New York Times.

Another program that will begin in 2005 would still enable IBM senior executives to acquire market-priced stock options — but only if they first invest their own money.

For example, stated the company, in order for a senior executive to acquire market-priced stock options with a target value of $18,000, the executive would first be required to invest a portion of his or her annual cash bonus to purchase $9,000 of IBM stock. The executive would then be required to hold all those purchased shares for at least three years in order not to forfeit the entire option grant.

Senior executive compensation at IBM is based on company, business-unit, and individual performance. Equity in the company, such as stock options, is generally granted annually to most executives as part of their compensation and as a retention tool. IBM also grants options annually to high-performing employees as a retention tool; that program will not be affected by these changes.