Brian,
The Splinter Options are issued for good reasons, but I am sure that it does not sit well in this option bashing era.
Mike Splinter must have demanded compensation to make up for the Intel options he was walking away from, i.e. Intel Options which are not yet exercisable, but are still below todays market price. Typically a new employer is granted a one time up front cash bonus to compensate for such issues. Apparently AMAT has granted Mike a large number of options below todays market value. This has very interesting implications.
A. Mike has to pay taxes immediately on the amount the options are below todays market price. So AMAT will probably pay him a cash bonus to pay the taxes on the option grant as well.
B. Silicon Valley has built on options because the employee become a stockholder as well, and then the interests of the employee and the shareholder become congruent. However this has been called into question by the Enron debacle. It is alleged that if the company stock does not appreciate, due to general market or industry conditions , the CEO's financial self interest and the stockholder's interests are not congruent. The option then incentives the CEO to take needless risks to pump up the stock past the option price. There is no reward to the CEO for capital preservation, which is the implicit interest for every shareholder. Under such conditions the CEO will only shoot for the fences, have no regard for capital preservation, and take needless risks or manipulate the accounting. It has been suggested that it is better to give the CEO an outright grant of the stock instead of options, because then the CEO has a financial stake in Capital Preservation. The Mike Splinter Option package amounts to such an outright grant of stock, except that he has to stay as an AMAT employee to cash in on this "outright stock grant".
The Splinter option grant is unusual, and since this addresses some of the issues raised by tradional CEO option packages, you may see more financial packages for new CEO's like this one.
However the stockholders will be in arms due to the present climate. I wonder if you will get any official response from AMAT. |
