Human Capital & Careers

DaimlerChrysler First to ”Opt Out”

After FASB's recommendation that options be expensed, the automaker is the first company to discontinue awarding them to executives.
Stephen TaubApril 6, 2004

DaimlerChrysler AG became the first company to announce that it will no longer reward its executives with options since the Financial Accounting Standards Board proposed last week that companies expense this form of compensation.

A company spokesman told Reuters that Juergen Schrempp, DaimlerChrysler’s chief executive officer, would unveil a different method of remunerating its 6,000 executives at the group’s annual meeting in Berlin, scheduled for tomorrow.

According to Reuters, DaimlerChrysler’s current options plan expires next year, and the company has been discussing this change with institutional investors for the past few weeks.

The wire service also cited the German newspaper Die Welt, which reported that half of the future compensation of DaimlerChrysler executives will depend on the group’s net return on capital. The other half will depend on Daimler’s return on sales over a three-year period compared to its top three rivals in a peer group.

Last month, Europe’s largest phone company, Deutsche Telekom, said it would scrap stock options in favor of a plan that would reward executives if the company met annual and semiannual goals.

Stateside, at the upcoming annual meeting of Eastman Kodak Co., a group of shareholders will call for the film and imaging company to stop paying options, severance, and other forms of compensation to its five top executives.

The non-binding resolution, which the company opposes, was sponsored by Robert D. Morse, a New Jersey investor and stockholder who has sponsored similar resolutions in the past but is not known for being successful.

“Moderation is needed in corporate remuneration,” Morse said in the Kodak proxy. “Any person can live very lavishly on $500,000 per year. Overpaying management has been ongoing and increasing for years.” Morse’s resolution comes on the heels of Kodak’s January announcement that it would slash as many as 15,000 jobs, or about 20 percent of its workforce, and last week’s shakeup that removed Kodak, AT&T Corp., and International Paper Co. from the Dow Jones industrial index.

In response to Morse, Kodak said in its proxy, “Stock options are a type of long-term incentive which ties compensation directly to increases in shareholder value.” It added that this kind of compensation is important because it enables the company to “compete effectively for executive talent.”