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Technology Stocks : Intel Corporation (INTC)
INTC 36.34-0.1%3:59 PM EST
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To: Road Walker who wrote (172881)2/6/2003 5:07:50 PM
From: Dave Budde  Read Replies (1) of 186894
 
More thoughts on compensation...

Executives are compensated generally in three ways:
1. Base pay. This is a salary that is competitive and is designed to meet the monthly pay-for-service type of compensation. Some executives have decided to waive this component (e.g., Apple and Cisco CEO each gets $1/yr. base pay).
2. Bonus. This is a kicker for past performance based on results achieved vs. some preconceived plan. These are usually paid once a year.
3. Stock options. These are designed for retention and reward for future performance.

Obviously there are other mechanisms people use to compensate, like hiring bonuses, low interest loans, a jet, etc. But the above are the typical formula for high tech companies for key employees and executives.

With regard to options, when these are granted they carry no immediate value to the holder. This is because they aren't yet exercisable and also there is no material difference between the exercise price and the current stock price. So one should look at these when granted as a value placed on the future performance of an individual, not on past or current performance. The employees that the company wants to keep more than others are the ones that get larger options. And this is as it should be. Options are very necessary tools for retention because if they didn't exist, turnover would be abysmal. There is nothing like an in-the-money option to keep people from even looking at another job.

One should not look at options and say, what did this person do to deserve that option grant. One should say, if that person left, what would be the impact and is this option enough to ensure that doesn't happen.
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