OFF SUBJECT: I WISH I MADE THEIR KIND OF MONEY! (:->
Like blue jeans, like rock music, like Coca-Cola, U.S.-style stock options are catching on abroad.
Warning: Capitalism is contagious
By Luisa Kroll
THE ONCE-YAWNING GAP between U.S. chief executives and their counterparts abroad is fast closing. The stock options mania has spread globally.
Two years ago New York-based consulting firm Towers Perrin surveyed international manufacturers. It found about half of them offered some sort of long-term incentive bonus or option plans. A year later it found the number had jumped to more than 60%, an increase Towers Perrin terms "extraordinarily strong."
"Our offices have been overwhelmed with calls every day from local companies calling us to ask about them," says Daniel Marc, executive director of Towers Perrin Argentina. Oil company YPF, Argentina's largest company, has led the way by tying pay to return on capital. Others have followed: At Argentinean property development company IRSA, Chairman Eduardo Elsztain gets a modest salary—more than $200,000—but is getting 13 million shares at $1 each, a steep discount to the stock's recent trading price of $3.72. These are restricted for seven years.
In Germany the typical chief executive of a blue-chip company like Siemens earns $550,000 in salary and bonus, according to Geneva-based Corporate Resources Group, a consulting outfit. That's modest by U.S. standards, but it doesn't include options. Last year 10% of German companies listed on the DAX, Germany's equivalent of the Dow Jones industrials, offered option-type packages to executives. This year, with companies like Lufthansa and Schering joining Daimler-Benz and Hoechst in the options parade, the number is up to nearly one out of three.
"The point is clear in the German boardrooms. They need to have long-term incentives to compete globally," says Rainer J. Schätzle, senior consultant at Towers Perrin Germany. "There's no way back."
Last May Japan legalized stock options. Since then, at least 40 of the more than 3,000 registered companies have registered stock option programs. Car manufacturer Toyota, financial services company Orix and arcade game vendor Namco are among them.
Call it globalization of talent. In an era when big business seeks talent wherever it can find it, companies no longer restrict their search to their own nationals. Ford Motor is today headed by an Australian, Compaq Computer by a German. Hartford Insurance's chief executive, Ramani Ayer, was born in India.
With this internationalizing of the executive talent market, companies everywhere must pay international scales. And they are: U.K.- based Glaxo Wellcome's chairman, Sir Richard Sykes, actually earned more last year than U.S.-based Merck's chairman, Raymond Gilmartin—Sykes' pay package last year was $2.9 million; Gilmartin's, $2.6 million.
Socialism dies hard, however. Norway's parliament has passed a law that effectively eliminates any incentive to issue options. It, in essence, taxes options as current income even though they might expire worthless. Who wants to pay taxes on profits that may never materialize? Vows Erik Tønseth, chief executive of Oslo-based Kvaerner, an engineering and construction group: "We will find schemes that will serve the same objective as options have in the past."
He probably will. Norwegians may not like the way the world is going, but there is no way they can get off it. "Over time, the rest of the world will catch on," says Charles Sweet, president of A.T. Kearney's Executive Search. "It's capitalism at its most basic."
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