Newspaper article St Louis Post-Dispatch (MO)

Companies Use Stock as Carrot and Stick

Newspaper article St Louis Post-Dispatch (MO)

Companies Use Stock as Carrot and Stick

Article excerpt

Paying executives for performance is one thing. Making them live with it is another.

Directors of more and more companies are requiring executives to take their lumps and gains along with other shareholders by requiring executives to own stock.

A plan approved by May Department Stores Co. last year requires Chief Executive David C. Farrell to own stock worth five times his base salary.

Farrell didn't have to buy stock to reach the goal. He already owns stock worth $43.7 million - nearly 40 times his salary of $1.1 million. Other May executives subject to stock ownership requirements have four years to comply.

The plan has requirements for stock ownership reaching down to members of senior management committees of operating divisions, such as Famous-Barr, Lord & Taylor or Payless ShoeSource. A general merchandising manager at a division is required to own stock worth one and a half times his or her salary.

Leaders of most major St. Louis companies already own large stakes in their companies. Some acquired their stakes because they helped found the company and take it public. Others have bought their shares with options or received them as part of a pay package.

Leaders in stock ownership among St. Louis executives include several descendants of founding families.

Top in ownership is John F. McDonnell, chairman of McDonnell Douglas Corp., who owns 2.5 million shares of McDonnell stock worth $156.3 million as of May 1. Michael E. Pulitzer, the grandson of Joseph Pulitzer and chief executive of Pulitzer Publishing Co., owns Pulitzer stock worth $117.8 million. August A. Busch III owns $95.2 million in Anheuser-Busch stock.

Compensation consultants expect more companies to adopt guidelines on stock ownership for executives. They also expect companies to change the way they award stock options, which are a common part of incentive pay plans at most St. Louis companies.

Most stock option plans allow executives to buy stock at the market price on the day the option is granted. Most plans require executives to wait a year or more to use the options. If the stock price goes up, they can buy stock at a discount. If it goes down, the options are worthless. …

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