Hey D.J. did you see this one in today's WSJ?? Not only could Dell execs dump shares while employees could not, but I love the comment by crack PR wizard T.R Reid where he says 'the company ended the five year lock-down rule because it was no longer necessary to keep employees focused on shareholder value'!!! No wonder Dell the stock has been in the crapper for the last three years....
Regards,
John <ggg>
Michael Green knows that. The 35-year-old investment specialist joined Dell Computer Corp. in 1995 as a product manager. He and his wife, Lisa, an assistant controller at the company, were thrilled as the stock rose to about $51 a share in late 1999 from $1 in mid-1995, adjusted for splits.
But by the late '90s, the couple felt overexposed to Dell. In addition to the Dell stock that the company had contributed to their 401(k) plans, they had received stock options as bonuses. And they had bought a home in Austin, Texas, where the real-estate market is tied in part to the fortunes of Dell, one of the area's biggest employers.
The Greens sold some of the stock they received as bonuses. But Dell wouldn't let employees sell shares the company contributed to their retirement accounts until they had been at the company for five years. "I tried so hard to sell," Mr. Green says. "We went around and around."
The company changed its policy last year to allow all Dell employees to sell the shares in their 401(k) plan and shift the proceeds into alternatives available through the plan. By then, though, Dell shares had plummeted, erasing $200,000 from the Greens' 401(k) accounts. "That's as much as we paid for our house," Mr. Green says. Both left Dell earlier this year for other jobs.
SEC filings show that Dell executives, though subject to the same restrictions on their regular 401(k) accounts, can participate in a supplementary retirement-savings plan that allows them immediately to reinvest the company's contribution in a variety of options. Executives have seized that opportunity: Just 9% of the supplementary retirement plan was invested in Dell stock at the end of last year, according to the company's latest 11K filing, compared with about 50% of Dell's 401(k) plan.
Dell spokesman T.R. Reid declines to comment on the Greens' circumstances. He says that any employees who lose so much money on company contributions could do so only because they had made a bundle until that point. And providing Dell shares to the employee retirement-savings plan, he says, "certainly provides incentive to not only think but act like a shareholder."
The company ended the five-year lock-down rule, Mr. Reid says, because it was no longer necessary to keep employees focused on improving Dell's shareholder value. And he says Dell executives don't have to hold company stock in their supplementary plan because they "receive a significant portion of their compensation in Dell stock," and thus they already "have the broader interests of the company and shareholders squarely in their sights."
SEC filings show that Dell executives nonetheless have means to protect themselves from exposure to the company's stock. Michael Dell, chairman and chief executive of the computer company he founded, transferred a total of 4.1 million shares, worth $190.7 million, into so-called exchange funds in several transactions between September 1999 and May 2000. (The shares accounted for about 1.3% of Mr. Dell's total company holdings at the time).
Offered by financial firms to the wealthy, exchange funds are, in essence, mutual funds that allow holders of large chunks of a single stock to pool their assets, giving them a stake in a diversified, less-risky basket of securities and, in some cases, postponing tax liabilities. Altogether, the value of Mr. Dell's hedged shares would have fallen in market value by 38%, or $73 million, by earlier this month had he taken no precautions. (The return on the diversified exchange fund isn't disclosed).
Until the five-year rule was lifted, employees like Mr. Green could get out of their Dell 401(k) holdings only by withdrawing money from their accounts, paying income tax and a 10% penalty on the withdrawal, and then reinvesting the difference.
Or, says Dell spokesman Mike Maher, they could have elected "to take their compensation and not put it in their 401(k), and invest it in some other stock." By doing so, however, they would have forgone the company's matching contribution altogether. Mr. Maher declines to comment on Mr. Dell's transactions. He notes that like executives, regular employees who receive options are free to sell their shares. "We're all playing by the same rules," he says. |
