Intel CEO calls for expensing top execs' stock options
Elmer, thread - Any comments on this press release? Does anyone know how these would be expensed from the bottom line?
biz.yahoo.com
By Duncan Martell
SAN FRANCISCO, May 22 (Reuters) - Craig Barrett, chief executive of No. 1 chipmaker Intel Corp., on Wednesday proposed companies be required to expense stock option grants given to their top five executives, proposing a middle ground in what has become a hotly debated issue since Enron Corp.'s collapse.
"I think what we could do as a way to prevent abuse of options and excessive option grants to the top members of a company is just basically to force companies to expense the options granted to the top five officers," Barrett said in response to a question at the company's annual shareholder meeting in Santa Clara, California, where Intel is based.
"That would in fact minimize abuse at the top but it would continue to allow companies to have a wide distribution of options to all of their employees without any expense," said Barrett, a 30-year Intel veteran. "So, if you'd like to write your congresspeople with that proposal, I'd appreciate it."
The issue is of no small importance to Intel (NasdaqNM:INTC - News), which grants stock options to all of its 85,000 employees, Barrett said, adding that well above 90 percent of the stock option grants Intel issues go to nonexecutive officers.
Currently, U.S. regulators do not require companies to count stock option grants -- which among technology companies often account for a large share of total compensation -- as expenses, as they must with salaries.
However, some companies, Intel included, provide a footnote in regulatory filings detailing what the impact would be to the bottom line if they had treated stock options as an expense.
Stock options, doled out to U.S. corporate executives by the throughout the 1990s, give one the right, but not the obligation, to buy a stock at some point in the future for a set price.
COULD STIFLE INCENTIVE
The concern, particularly among technology companies, is that it could stifle the ability of Intel and others to reward rank-and-file employees, mid-level managers and the like, for their hard work and contributions to the company's revenue and profit growth over their years with the company.
"I would hate to see us move to a position where we cannot tie our employees to the success of the company with the options they hold, and that includes every one of our 85,000 employees," said Barrett. He was paid $1.92 million in salary, bonus and all other compensation in 2001, and awarded options for a total of 484,696 shares, with those options expiring in 2011.
If all stock option grants were expensed, that would count against profits and constrain the ability of Intel to reward staff, executives said.
"If you added a lot of expense into the structure, we'd likely have to reduce the program," said Andy Bryant, Intel's chief financial officer, in response to the same question.
U.S. Federal Reserve Chairman Alan Greenspan recently urged U.S. regulators to overhaul rules on stock options, saying the Enron (Other OTC:ENRNQ.PK - News) debacle showed the need to get rid of accounting distortions.
"I fear that the failure to expense stock option grants has introduced a significant distortion in reported earnings -- and one that has grown with increasing prevalence of this form of compensation," Greenspan told a financial-markets conference convened in Georgia by the Fed Bank of Atlanta on May 3.
Billionaire investor Warren Buffett, whose BerkshireHathaway Inc. does not issue option grants, also supports Greenspan's push to get companies to account for stock options as an expense.
"Something must be done about it," Buffett said at a media conference on May 5 in his home town of Omaha, Nebraska.
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