Newspaper article THE JOURNAL RECORD
Economists Expect Stock Options to Remain Key Compensation Tool
NEW YORK _ Stock options, the buy-low, sell-high incentives that make rich executives richer, may become less lucrative under President-elect Bill Clinton's tax program but will remain a key form of management compensation.
In the few remaining weeks of the year, executives across the nation are expected to cash in their stock options as they load up income in 1992 to beat the tax man of 1993.
"You're going to have people all over the country exercising stock options right now for fear of what might happen," said Walt Disney Co. board member Raymond Watson.
He designed the contracts that allowed Disney Chairman Michael Eisner and President Frank Wells to net a combined $257.2 million when they exercised stock options on Tuesday.
The move was intended to avoid higher taxes under Clinton, who has proposed raising the top marginal tax rate for people who earn more than $200,000 a year and imposing a surcharge on millionaires. The president-elect also has proposed limiting the deduction companies may take on an executive's salary.
Stock options have long been lauded as an important way to attract top executives, keep them focused on the future instead of on the perks of the present and align their interests with shareholders.
Corporations have been granting executives stock options for decades. But it wasn't until the 1980s that shareholders became vocal in their resentment of highly paid executives whose companies were poor or mediocre performers. As a result, stock options began to replace other forms of compensation, like bonuses and raises.
"The bottom line is their continued use is probable and even advisable," said Jude Rich, chairman of Sibson Co., a Princeton, N.J.-based compensation consulting firm.
Stock options give an executive the right to buy a specified number of shares at an agreed upon price and are most valuable when a company's stock price rises. In Disney's case, Eisner exercised options to buy 5.4 million shares at $3.60 each, then sold 3.4 million shares at the market price of about $40 a piece, which pocketed him a difference of nearly $200 million.
Clinton spokesman George Stephanopoulos said he doubted others would follow suit. …