Just who was getting those options?

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Several of the commenters to my post Monday about options backdating portrayed it as a case of top executives changing the rules to enrich themselves. But most of the companies caught up in the scandal so far are in the tech industry, which is known for lavishing options on employees far below the CEO paygrade.

Out of curiosity, I did a bit of sniffing through the proxy statements of a few of the backdaters to see how skewed their options grants were toward top management. As a control case, I looked at Cisco Systems, a legendarily generous options granter that has not been implicated in the backdating scandal. I focused on the 2000 proxy statements, detailing options granted in 1999, but in some cases I also looked at other years to make sure 1999 wasn’t anomalous. What did I discover?

Recently ousted United Health CEO William McGuire received 28.8 percent of the options granted to the company’s employees in 1999. The top five executives as a group got 47.3 percent. Things didn’t look quite so bad the next year, though, when McGuire got 8.1 percent and the top five 15.1 percent.

At Broadcom, none of the top executives received any options in 1999. In 2000, the top nine executives got 2.2 percent of the options granted. Then-CEO Henry Nicholas, who owned 43 percent of the company, received no options either year.

Brocade Communications CEO Gregory Reyes, who resigned in January and has since been charged with securities fraud, got no options in 1999, while the top five executives as a group got 5.24 percent. In 2000 Reyes got 3.4 percent and the top five executives 8.14 percent.

At McAfee, then-CEO William Larson got 25.8 percent of the options granted in 1999 and the top five executives 73.5 percent. The next year Larson got none and the top five executives got 29.48 percent.

At Apple, the top five executives as a group got 27.22 percent of the options granted in 1999. Steve Jobs became CEO in January 2000 and got a spectacular one-time grant of 20 million options, or 43.8 percent of the total, with the top five executives getting 46.43 percent total. By the next year things had settled down a bit, with Jobs getting no options and the top five executives as a group getting 11.48 percent.

At CNET Networks, then-chairman Halsey Minor got 8 percent of the options granted in 1999 and recently departed CEO Shelby Bonnie 2 percent, with the top four executives getting 20.2 percent.

At Comverse Technology, then-CEO Kobi Alexander got 6.4 percent of the options granted in 1999 and the top five executives 12.3 percent.

At Mercury Interactive, since-ousted CEO Amnon Landan got 14.82 percent of the options granted in 1999 and the top four executives got 25.72 percent.

And how did it go at our control company, Cisco Systems? In the company’s 2000 fiscal year (which started in mid-1999), CEO John Chambers got 1.33 percent of the options granted and the top six executives 2.69 percent. In the 2001 fiscal year it was 2.01 percent to Chambers, 2.82 percent to the top executives as a group.

This survey is nowhere near exhaustive enough to draw strong conclusions. But it is very interesting that every backdating company except Broadcom and to a certain extent Brocade was far more generous to top executives relative to the rest of its workforce than Cisco was. My readers appear to be onto something.

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