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IBM cuts off stock options

Hillary Wicai Dec 21, 2006


LISA NAPOLI: Pity the poor stock option. It used to be as precious and as precious as gold, but all these accounting and backdating scandals have cast a pall. Now, IBM is joining the ranks of companies cutting off stock options to it board of directors. Marketplace’s Hillary Wicai says the hope is the move will improve its governance practices.

HILLARY WICAI: IBM says instead of granting its outside directors stock options, they’ll be paid a $200,000 retainer. Directors can take that sum in IBM shares or partly in cash.

Peter Gleason with the National Association of Corporate Directors says this is a cleaner form of compensation that he thinks more companies will adopt. He says directors will still have a stake in the company, but it appears more above board.

PETER GLEASON: With options there’s no downside risk because if your strike price is $100 and the stock falls down to $80 you just don’t exercise the options. If you give somebody a full-value share, when you hand it to ’em it’s worth $100 and the stock price goes down to $80, well then they’ve lost $20 per share in value as well. So they’re feeling the same pain that a shareholder would.

The change will not apply to IBM CEO Samuel Palmisano who is also the company’s board chairman. Options account for a large chunk of his pay.

In Washington, I’m Hillary Wicai for Marketplace.

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