December 21, 2006
IBM Stops Compensation Options
International Business Machines Corp. made news yesterday with its announcement that it would no longer pay outside directors' salary in stock options. Starting January 1 of next year the directors get a annual $200,000 cash retainer. The company will follow the advice of Warren Buffett -- outside directors in Berkshire Hathaway Inc. had long be only paid in cash. What makes the IBM mover complicated, however, is the company's companion program in "Promised Fee Shares." Directors are expected to put at least 60 percent of their compensation in a phantom stock grant program with payments deferred until retirement or other departure from the board. The program is very complex, unnecessarily so, look at the hash the New York Times made of it in today's paper. Compensation programs have long suffered from excessive complexity, designed to obscure and confuse (as well as to find crevices in tax and accounting laws). The new SEC rules try to cut through much of it, but lawyers will soon micro-read even those rules. Shareholders should reward clarity in compensation programs; any programs that cannot be understood easily and quickly should be assumed to be too tricky to support.
TrackBack URL for this entry:
Listed below are links to weblogs that reference IBM Stops Compensation Options: