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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (172881)	2/6/2003 4:46:06 PM
From: Tenchusatsu	Respond to of 186894

JF, <These guys may be great, even phenomenal managers, but they are not Rock Stars.> Personally, I think rock stars are paid a little too much, along with their agents and execs. But once again, I digress ... Tenchusatsu

To: Road Walker who wrote (172881)	2/6/2003 5:07:50 PM
From: Dave Budde	Read Replies (1) \| Respond to 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.

To: Road Walker who wrote (172881)	2/7/2003 8:32:34 AM
From: Amy J	Read Replies (1) \| Respond to of 186894

Hi John, Hard to argue with your logic. Good post. But I disagree with, "Pay these guys on a percentage of the gross profit"), because that doesn't necessarily align an execs interest with investors. You remember the Enron-like company in the early 90s where there was some kind of gorging of profits that took their stock down. Much better if the industry leaders continue to use stocks as the reward. RE: "Still, it seems outrageous to be rewarding these folks in a very grand manner when the owners of the company are suffering great losses." Carl's issue was with 10 year-old past options, thus, I disagree with his point. But your issue is something different, it's with the new option grants, and I concur up to a certain point: it's possible the amount of the refresh at the top-most that may be at issue, given the amount of pain investors are experiencing (50% drop in stock price last year). Hypothetical example: if an employee of CompanyABC has 10 options, and gets a refresh of 5, that's 15. The increase is 50% or a spread of 5. Small spread - give it to them. If an exec of CompanyABC has 1,000,000 and gets a refresh of 500,000, that's 1,500,000. The delta is still 50% but the spread is 500,000. (Not implying Intel did this) I can't think of a single comp committee in the private equity markets that would give that same 50% increase (that an entry level employee would get) to their top-most execs, because a comp committee would say their total is too high to justify a 50% increase, but a smaller % would be okay - they need to be motivated too. I don't know Intel's formula, but your post may suggest things could have been done differently. I think Intel's comp committee should have done the following: - use a hyperbola (or logarithmic) comp formula because this would have some aspect of easing up at the top - realize the Nasdaq went from 5,500 companies downto 3,500, which means there's a surplus of 2,000 company execs out there. (Even our startup received hundreds & hundreds of bios/resumes that included knock-out execs from F500 & other brandname public companies) - supply & demand ratio increases during downturns, so push-backs are reasonable - when comp committees formulate the option amounts, they look at comparables, they never do anything out of the box, but if the comparables inch upward over the decades (because someone else wants your exec, so there's this natural inching upward - possibly small but incremental), then downturns should be used to push-back the natural increases (I'm assuming there's a natural increase trend, possibly incorrectly so). - measure the CEO:entry level employee ratio as a function of options & comp and publish it in the proxy statement - work with other comp committees so a pushback is done in a consolidated fashion (not a, "you go first, so I can take your guy.") - put an outside HR exec on the comp committee who doesn't have any business with the company (I wonder why there isn't an HR person on the comp committee? In the private equity markets, we have this) - task the HR exec with the role of sensitivity measurement as it relates to investors & employees, while the rest of the committee should be focused on exec retention and comparables - don't link bonuses to stock performance except in one case: if the stock drops more than 50% then bonuses should be impacted (otherwise there's a potential for appearances to be out of step) - if a stock drops more than 50% in one calendar year, then refresh stock option grants but with an easing up formula at the top-most (logorithmic or hyperbola approaching an asymptote), not straight-line linear at all levels. Otherwise, it may appear to be out of step. I think Intel's SOP% is reasonable, just a visibility issue they seem to have in the distributions of SOPs. But then again, Cisco seems to distribute more at the top? Maybe both should have eased up during this downturn a bit more , at least to avoid a visibility issue, and given more later when lock-step with investors. RE: "Jan '05 leap calls today for $4.75" I saw those too. Did you buy them? You can guess my answer. (Yes) Regards, Amy J