Hmmm... Let me think on this a second... We gotta expense stock options now, and the stock really hasn't grown like it used to back in the '90s, and our senior executives really need more money now that they aren't bathing in stock profits... Voila! We'll give 'em cash instead, and screw the options, and we'll blame it all on those new rules that make us expense our options...
In other words, why I've never owned DELL...
online.wsj.com
Dell to Cut Stock Options, Pay More Cash Bonuses
Company Aims to Drop 'Computer' From Name As It Moves Into Other Technology Businesses
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
In response to efforts to push companies to treat stock options as expenses, Dell Computer Corp. plans to pay potentially hefty cash bonuses to a group of senior executives in coming years even as it sharply cuts employee stock-option awards this year.
The move bucks a trend by many companies to either treat stock options as expenses, thus lowering profit, or switch to restricted stock grants, which would reduce the amount of stock that must be issued while still benefiting executives. Compensation experts say most companies are favoring restricted stock rather than cash or options.
Companies have long offered executives compensation tied to the performance of their stock. Stock options give the recipient the right, but not the obligation, to buy stock at a predetermined price after a given date, regardless of its market value at that date. They can be valuable if the stock trades above the option price, but can end up worthless if the stock falls below that price. Restricted stock comes with conditions governing when the recipient may sell or transfer the shares, and generally must be returned if the recipient leaves the company.
As at many technology companies, stock options have been an extremely popular form of compensation at Dell, creating a class of wealthy employees dubbed "Dellionaires." But the Round Rock, Texas, computer maker has been a vocal opponent of expensing stock options, and has said it plans to halve the total number of employee options issued this year compared with last year.
The company also is asking shareholders to allow it to change its name to Dell Inc. from Dell Computer Corp., signaling its efforts to branch out into other technology businesses.
In the past, Dell's granting of stock options to employees significantly expanded the company's cash flow and reduced its taxes. UBS Warburg LLC has estimated the company saved as much as $1 billion in annual taxes during the late 1990s by deducting from corporate income taxes the exercise of stock options by employees. When employees exercised the options and paid for the shares, the payments also increased Dell's cash flow.
Under the plan disclosed Monday, an undisclosed number of senior executives could earn as much as 10 times their 2002 cash bonus if the company hits targets each year through January 2006. That means individual executives could receive as much as $6.9 million in cash, money that would be paid in 2006.
Expensing options when they are granted would hit Dell's bottom line hard. If Dell had expensed options for its last fiscal year, its earnings would have fallen by a third, to $1.4 billion from $2.1 billion.
A Dell spokesman said the new plan covers "a very select group" of senior executives, excluding the company's chief executive officer, Michael S. Dell, and chief operating officer, Kevin B. Rollins. The executives under the plan still would be eligible to receive stock options and annual cash bonuses. He said the new bonus plan is intended to help retain senior executives.
Brian Foley, president of White Plains, N.Y., executive-compensation consultants Brian Foley & Co., said the potential value of the cash bonuses could be as much as four times the estimated present value of the most recent option grants.
"This is substantial cash," said Mr. Foley. He said the projected long-term bonus is 10 times the annual bonus for 2003, which itself was more than the 2001 and 2002 annual bonuses combined. Because Dell can continue issuing some stock options, he said the new compensation "appears to be a super bonus," above what the company already provides.
Dell's plan didn't disclose the performance targets that the company must achieve under the new cash-bonus plan, but it estimated that three senior executives could receive as much as $6.9 million each by 2006.
Write to Gary McWilliams at gary.mcwilliams@wsj.com
Updated May 6, 2003
KJC |
