Subject: [NEXTEL-1] Timmy Gets 1 Million FREE Nextel Shares-

From: Marcelrf <[email-masked]>
Date: Wed, 25 Feb 2004 00:23:27 -0500

Bloomberg Columnists

Graef Crystal is a columnist for Bloomberg News.
The opinions expressed are his own.

Timmy Gets 1 Million FREE Nextel Shares-
U.S. CEOs Replace Option Grants With Free Shares:
Graef Crystal

Feb. 11 (Bloomberg) -- As the bulk of U.S. companies disclose executive
pay for 2003, we will find that stock-option grants have declined in
size. That's the good news for those who think chief executive officers
are paid too much. The bad news is that free share grants have taken up,
or more than taken up, the slack.

These are the key conclusions from an analysis of grants made to the
CEOs of companies in the Standard & Poor's 500 Index during the last
half of 2003. Equilar Inc., an independent provider of executive pay
information, furnished the data.
The following table shows the 15 largest option grants, measured by
multiplying the number of shares in the grant by the market price per
share on the grant date. The table also shows the options' in-the-money
status, determined by multiplying the number of shares by the difference
between their strike price and last week's closing stock price.

Largest Option Grants
Size of   In
Grant     Money

Company                   CEO                     (000)     (000)
Anheuser-Busch Cos.       Patrick Stokes        $70,770     -$352
Cisco Systems Inc.        John Chambers         $37,020   $12,460
Gannett Co.               Douglas McCorkindale  $34,932     -$988
Gillette Co.              James Kilts           $32,380    $4,590
Lehman Brothers Holdings  Richard Fuld          $32,126    $4,856
Washington Mutual Inc.    Kerry Killinger       $30,043    $3,572
Amgen Inc.                Kevin Sharer          $29,633     -$445
Applied Materials Inc.    Michael Splinter      $24,695      -$77
Citigroup Inc.            Sanford Weill *       $24,311      $980
Campbell Soup Co.         Douglas Conant        $24,263      $434
McKesson Corp.            John Hammergren       $24,052   -$3,451
American Intl Group Inc.  Maurice Greenberg     $23,981    $3,086
Occidental Petroleum      Ray Irani             $21,791    $8,701
General Mills Inc.        Stephen Sanger        $21,612     -$518
Johnson Controls Inc.     John Barth            $21,020    $3,004

* Former CEO

Low $21,020 -$3,451 Median $24,695 $980 Average $30,175 $2,390 High
$70,770
$12,460

A few observations:

-- The typical option in this group is modestly in the money. One
wouldn't expect large numbers here, because the options aren't even one
year old.

-- Estimated present values for these grants are far higher than the
in-the-money amounts. The median and average values were $8.1 million
and $10 million, respectively, based on an assumption that their present
value equaled 33 percent of the underlying stock's value on the grant
date. Statistics derived from an analysis of the S&P 500 show this
percentage is typical.

-- Anheuser-Busch's Stokes, the CEO with the largest grant, received
exactly the same number of underlying shares in 2003 as he did in each
of the two preceding years. One has to wonder how his board decided the
grants should be exactly 1,354,200 shares and not, say, 1,354,000 or
1,355,000.

-- Cisco Systems' Chambers received options on 6 million shares for the
fiscal year that ended July 31, 2001, and on the same number for the
following year. Subsequently, he voluntarily relinquished one of his
2002 grants, covering 2 million shares.  That left him with 4 million.
For fiscal 2003, Chambers received new grants on another 4 million
shares. One of the grants, for 2 million, appears in the table.

-- Gannett's McCorkindale received a grant in December 2003 for 400,000
shares, the same number as a year earlier.
The following table shows the 15 largest free share grants, as measured
by their value as of Friday's close.
Largest Free-Share Grants

Value Company CEO (000) Nextel Communications Inc. Timmy Donahue $26,940
Exxon
Mobil Corp. Lee Raymond $20,255 Citigroup Inc. Charles Prince $15,697
Occidental
Petroleum Corp. Ray Irani $14,826 Sanmina-SCI Corp. Jure Sola $13,090
Anadarko
Petroleum Corp. James Hackett $10,020 Boise Cascade Corp. George Harad
$8,415 Duke
Energy Corp. Paul Anderson $6,239 Robert Half International Inc. Harold
Messmer $6,180
North Fork Bancorp John Kanas $5,882 CIGNA Corp. Edward Hanway $5,655
Home Depot
Inc. Robert Nardelli $4,905 Deere & Co. Robert Lane $4,589 EOG Resources
Inc. Mark
Papa $4,326 Morgan Stanley Philip Purcell $4,216

Low $4,216
Median $6,239
Average $10,082
High $26,940

A few comments here:
-- The average grant was worth $10 million, matching the average
estimated present value for the 15 largest option grants.  This parity
would rarely have been observed in recent years, suggesting that
free-share grants are rapidly becoming the long-term incentive plan du
jour.

-- There's a big difference between the average free-share grant and the
average option grant. If the company's stock price drops by half, the
free shares will still be worth $4.7 to $5 million, while the options
will be worth nada. This advantage explains why CEOs are so currently
enamored of free shares. After being burned by the steep market declines
of the past few years, they are now steering their pay ships to safe
harbors, ironically at the very time when stocks are heading up.

Nextel's Timmy
-- Nextel's Timmy, who received the largest free-share grant, had
received only option grants in 2000, 2001 and 2002. In 2002, the strike
prices of his two option grants, each covering 1 million shares, were
$5.02 and $5.35. On Feb. 6, Nextel stock closed at $26.94.

That's a thrilling increase. But it apparently thrilled Timmy too much,
because he received free shares -- 1 million of them -- for the first
time. To me, this suggests he isn't looking for a steep rise in Nextel's
stock price during the next few years and is more interested in
protecting against losses.

-- Exxon Mobil's Raymond has become quite fond of free shares. For 2000,
2001 and 2002, he received grants worth $9 million, $7.4 million and
$17.3 million, respectively. Last November, he received another 500,000
free shares, worth $17.9 million at the time and $20.3 million as of
Friday.

Latest Grant

The latest grant came just in time to help restore Raymond's
motivational levels. According to Washington Service, he exercised stock
options eight times last year. The exercises and subsequent sales
totaled 744,000 shares. He received no option grants during the last
half of 2003.

-- Citigroup's Prince, the new CEO, received a welcome-to-your-new-job
grant covering 318,337 free shares in July 2003.  Weill, his
predecessor, received none last year.

-- Occidental's Irani was the only executive to make the lists of
largest option grants and largest number of free shares.  That factoid
underscores his longtime eminence as a champion pay abuser. In 2002, for
instance, his pay jumped by 39 percent after more than doubling the
previous year.

The move to free share grants from option grants will likely result in
smaller amounts of CEO income if the stock market keeps going up. Yet I,
for one, am not pleased about this switch. What troubles me is all the
money some CEOs will make even as their performance falters.

Pay for Performance
Fortunately, a few companies are handing out free share grants with
performance conditions attached. Boeing Co., the world's largest
planemaker, is one example.

Boeing's top executives have to deliver stock price appreciation of at
least 15 percent a year over five years to earn their maximum share
awards granted in 2002. If the appreciation is less than 10 percent a
year, the share awards are forfeited.
For executives at these kinds of companies, it isn't enough to hang
around on the payroll to receive lots of money. They also must
contribute something of value. Institutional investors need to encourage
plans of that stripe.
To contact the writer of this column: Graef Crystal in San Diego at
[email-masked]
To contact the editor of this column: William Ahearn at
[email-masked]

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_crystal&sid=aZCGLucLR6dA

Last Updated: February 11, 2004 00:14 EST

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