Human Capital & Careers

Juniper Takes $900 Million Option Charge

The expense is one of the largest accounting hits to come out of the backdating scandal, so far. Meanwhile, IBM and American Tower rethink their op...
Stephen TaubDecember 21, 2006

Juniper Networks said it will take a $900 million non-cash charge for stock-based compensation expenses stemming from erroneously dated options grants. The networking company said the write-offs relate to options granted between June 9, 1999 and December 31, 2003.

This is one of the largest charges taken by a company since the options backdating scandal came to light. The announcement came after the completion of a seven-month independent investigation. Juniper also said its audit committee had “serious concerns” about certain former management.

Juniper said current CEO Scott Kriens received two stock option awards with measurement date issues. However, both options were canceled unexercised in 2001. Additionally, Kriens has not exercised any stock options since 1998, which was roughly one year before the company’s initial public offering. The audit committee and board expressed their continuing confidence in Kriens and the company’s current management.

Nevertheless, formal documentation often lagged the referenced grant date and there was insufficient exercise by management of responsibility for the stock option process, according to the company. “As the leader of this company, I would like to express our regret, to everyone who relies on Juniper, for the difficulties this situation has caused for us all. In prior years, we should have had better stock option granting processes, controls and oversight in place, and we did not,” said Kriens, in a statement. Kriens added that although management “cannot undo the past,” executives would focus on improving options granting procedures “going forward.”

As the backdating scandal intensifies and scores of companies report regulatory probes, major restatements, and executive resignations, several companies are rethinking the value of compensating executives, directors, and employees with stock options. On Wednesday, for example, IBM announced that it will no longer award stock options to outside board members. Instead, Big Blue will double the annual retainer paid to directors, to $200,000, effective January 1.

American Tower said it has taken a number of actions as a result of a review of its stock option granting practices. The operator of broadcast and wireless communications sites said eight current senior officers and board members agreed to eliminate any benefit received from options granted to them at prices below the fair market value of the company’s stock on the legal grant date.

The payback will be accomplished by increasing the exercise price of unexercised options to its fair market value. For exercised options, the holders will compensate the company for the amount of the benefit—less any taxes paid— through a cash payment or canceling vested options that have an in-the-money value equal to the amount of the payment. The total value of eliminating the benefit for the eight individuals is roughly $7.5 million.