Hi John, Like you, I think the underlying issue is the quantity granted (or exercised) during poor stock performance.
Though like Duke said, the options are not material, but I would add, Intel's board is only owning the material impact when they should also be owning the perceptional impact. Intel's board needs to learn that they can't create a negative perception that impacts effective industry policies. In other words, they need to own and drive perceptional impact, not just material impact, in their decision making. Basically what I'm saying is, Intel's board has allowed their comp committee to grant a certain quantity of stock to executives at a time that is out of step with the company's industry push to not expense options. They may win the battle but lose the more important war - time will tell whether or not it'll impact the future performance of the company and the industry performance as a whole.
Expensing options is unrelated to how responsible a comp committee is to its shareholders. Quantity & timing, not expensing, are the issues.
By creating a perception problem, they are essentially going to negatively impact an effective industry policy. Asking shareholders to vote no to expensing options while in the same breath granting more options, could drive shareholders to do the only thing they can do: vote yes to expensing stock options as a distorted attempt, to control the quantity.
Shareholders were given only one tool on the proxy I just read. The tool isn't a good one, but given that it's the only one provided, most likely it'll get voted in. It's like giving your shareholders only a hammer to fix a broken toilet and us accepting the tool but breaking the toilet while trying to fix it with a hammer rather than a plunger - more mess is going to be created. If Intel's proxy instead said something about controlling the quantity to a certain level, I bet both the board & shareholders would have voted for that, rather than expensing options which does nothing to control quantity to officers.
If I were on Intel's board, I would have done several things differently than what they did:
- I would have increased diversity (age/wealth) on the board in order to limit exposure on not understanding other potentially majority, shareholder perceptions. They don't have a single person that's in their twenties or thirties to present a different view, and it doesn't appear as if they even have a regular common shareholder, such as a John Fowler type. Why not? Lack of diversity just creates blind spots. I think if they would have had someone like John Fowler, there's a strong chance that person would have informed them they've created a perception problem that'll work counter to the bigger goal.
- I would have told the comp committee that they not only have to find the industry norms for comp packages, but they also have the new task of managing shareholder perception by presenting comp packages that are not out of step with the public mood. From my experience at private companies, comp committees are only tasked with the former, not the later, when in fact, they should be tasked with both. Perception becomes material, when perception begins to influence material decisions.
- I would have negotiated with the execs and asked them to hold off for one year on options. Reasonable and intelligent people generally agree to reasonable and intelligent requests. My bet is the comp committee works in a vacuum and doesn't ask their execs if they're willing to take a hit for one year. (At startups, we ask execs for cooperation. We don't just present the results. Reasonable execs, the ones you want to keep, help out. Get rid of those that don't.)
- I wouldn't have simply outsourced the project to a compensation consulting firm for them to present a survey on today's standards, which is how the proxy reads to me. I would have actively phoned up other companies and competitors and worked out a new industry norm for exec pay in conjunction with them - in other words, I wouldn't have simply taken what a survey currently says about today's comp packages, but instead, I would have pushed back further on industry norms through negotiations with key players in the industry as well as with the exec team, and by pointing out the public's mood. There's a bigger picture gain in company performance, when one takes a larger short-term pain.
- I would have spent more time on figuring out how to present the comp data in the annual reports a way that makes it as clear as possible to shareholders, what the cost to the shareholder is. I think disclosure and influencing the compensation amount are the underlying issues, not expensing.
- I would have gotten aggressive at bringing more people up the ranks as lower-cost backups for the exec teams, just in case. Changing a comp plan, means someone that really didn't want to be there anyway, might leave. Look at AMR. Probably a good thing he departed too - let someone more motivated take up the position if an exec can't show patience during this phase.
I think the comp committee blundered by misjudging public mood and their power, because if they really wanted to win the war, they could have simply have skipped one year's worth of options. I would have done something drastic with the exec team's comp packages (skipped options for one entire year) in order to avoid shareholders running to use an ineffective tool (expensing of options) due to their displeasure over quantity.
I have to agree with you, it's a tad hard to justify any type of perception of rewards when the stock is in the tank. Those that are intelligent, will realize these are unusually hard times and will stay and eventually be rewarded nicely.
(I posted this fast and have a meeting to run to pretty soon, after another quick post, so don't have time to proofread this one for clarity, errors, and the usual misinterpretations, etc.)
Regards,
Amy J |
