Or, how to stop slime-sucking (especially Vancouver) CEO's from screwing investors out of their money..!!
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THE DAY AHEAD: Tech companies face fight on options repricing
By Larry Dignan TDAIN
February 16, 1999 7:29am
ZDII
A lot of tech companies could have a much harder time rewarding executives for failure by repricing stock options. It's about time.
The repricing of stock options has drawn investor fire recently as shares of many tech companies have crumbled. Shareholders take a hit, but executives don't have to worry.
Options repricing: Corporate boondoggle?
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Why? Sagging options will simply be repriced. For instance, say Tech Company A gives an executive options at a price of $10. If shares jump to $20, the exec pockets the difference. That's fine. But if the stock falls to $5, the options are basically worthless. Often a company quietly reprices options so the exec still makes out. If the stock falls to $5, the options may be repriced at $3. Shareholders get no such reprieve.
Companies say repricing options keeps key executives. That's true, but it also rewards executives for failure and dilutes shares.
Shareholders typically don't get to vote on the repricing. But that could change soon though. The State of Wisconsin Investment Board (SWIB) earlier this month pushed through a resolution requiring General Datacomm Industries Inc. (NYSE: GDC) to get shareholder approval to reprice options. SWIB owns 9.6 percent of General Datacomm.
Needless to say shareholders voted the resolution in by a wide margin. The only thing that made the vote close was all those executive shares voting against the resolution.
Now, the shareholder approval for options repricing is in the bylaws. A spokeswoman for SWIB said the General Datacomm resolution was the first of its kind to be voted in by shareholders. And if SWIB gets its way it won't be the last.
Next on SWIB's hit list: Advanced Micro Devices (NYSE: AMD chart), Ascend Communications Inc. (Nasdaq: ASND chart), Cadence Design Systems Inc. (NYSE: CDN, chart), and Cambridge Technology Partners (Nasdaq: CATP, chart). SWIB owns stakes in those companies and is talking to the companies about options repricing resolutions.
"All of those companies have a high level of dilution and have repriced options," said the spokeswoman. Those companies have also seen their shares nosedive in the last year or so.
SWIB's push makes a lot of sense. Shareholders vote on amendments to options plans, but suddenly get snubbed when it comes to repricing. The reason is simple: shareholders would shoot the repricing down nine out of 10 times.
The solution is to make options repricing a part of a company's bylaws. Boards of directors may give options repricing lip service, but directors change. New management comes in and the repricing issue never gets settled.
Now the issue could be resolved -- for the better. TDAIN
Source: ZDII |
