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To: Peter V who wrote (131793)	7/2/2008 6:03:12 PM
From: Peter V	Respond to of 306849

Lehman Brothers: Are Employees the Poison Pill? Posted by Heidi N. Moore July 2, 2008, 5:30 pm blogs.wsj.com Lehman Brothers Holdings, whose shares rallied comfortably today although they are still down 69% for the year, plans to give its employees additional stock–20% of their 2007 bonuses–as a retention tool to keep employees at the investment bank. But is the move a retention tool, or is it really a very subtle poison pill to hold off any acquirer? Consider how little Lehman needs a retention tool right now. Lehman already is 30% owned by employees. Lehman executives boast about this fact, which they say shows its employees have faith in its success. Lehman also is fiercely independent; after an ugly 10-year history under the ownership of American Express, Lehman wrested its liberation by force and, like Scarlett O’Hara in “Gone With the Wind,” swore it would never go hungry for independence again. When Lehman did go public, among the first things it did was give employees an advance stock bonus, similar to what it is doing now. It sent a message about Lehman’s faith in its strength as an independent firm. That is the same message Lehman wants to send now. In addition, Lehman typically has been one of the more generous big Wall Street firms with its stock awards, which it gives to employees in the form of restricted stock units, or RSUs. Lehman’s RSUs have extraordinarily long vesting periods–five years or more, in many cases–and account in part for the fact that very few Lehman senior bankers leave to join a competitor. A rival firm that wants to poach a Lehman banker has to make him whole on all the years of past stock awards he holds; it isn’t unusual for that to add up to tens of millions of dollars for the most experienced individuals. But Lehman is willing to splash out money to keep the plan going. As I wrote in 2004 in this Daily Deal article, “The extensive use of RSUs has its costs, however. To support the plan and prevent share dilution, Lehman buys back a chunk of its stock at the end of each year. In 2003, Lehman spent $1.5 billion to buy back 23 million shares, representing about 60% of its operating cash flow, according to UBS analyst Glenn Schorr. Lehman plans to buy back 26.7 million shares at the end of 2004.” And consider, as well, that retention isn’t exactly a problem in this market. Investment banks are laying off employees. Sure, they can always make room for a Lehman Brothers star or two, but Lehman bankers are expensive and rivals couldn’t hire all that many. With no demand for investment-banking employees, in seems counterintuitive for Lehman to try and limit the supply. Lehman hasn’t released details on how much dilution to its shares would be caused by these stock awards to employees. Still, it is a fair bet that the move will serve to increase the company’s level of in-house ownership and make any surprise takeover that much harder.