Tech Execs Rake It In

My recent take on option dilution generated some strong responses, some supportive and some not. However, one theme that Bill Mann recently hit on kept popping up on both sides: Not all employees are granted equally, despite what option defenders would have you believe.

Intel's (Nasdaq: INTC  ) CEO, Craig Barrett, advised in his congressional testimony last year that only 5% of stock options be distributed to top executives, which might appear reasonable at first glance. Yet at companies the size of Intel, with 78,000 employees, executives reap an outsized number of options per person compared with the rank and file. In 2003, Intel granted 110 million options to employees, of which the six top executives received 2.4%, or 2.65 million -- with almost half going to Barrett -- at an average exercise price of $16.99. At current prices, those options are worth about $15 million. The balance goes to Intel's 78,000 other employees, for an average of 1,376 options per person, slightly fewer than the CEO received.

The same holds true for other big technology companies. Cisco's (Nasdaq: CSCO  ) CEO, John Chambers, received 4 million of the 6 million options granted to top executives in 2003, roughly 2% of the total. The other 34,300 employees averaged about 4,000 each -- a 1,000-to-one ratio. Four of Oracle's (Nasdaq: ORCL  ) top five executives (Larry Ellison took no options in fiscal 2003) raked in 5.6% of the 67 million in options for fiscal 2003, leaving about 1,500 options each for the remaining employees.

Tech companies get the most scrutiny when it comes to options because the grants are so exorbitant, but the inequality is prevalent in other industries as well. In 2003, General Electric (NYSE: GE  ) , with 305,000 employees, granted 9% of its 12 million options to three top suits, while home-improvement retailer Home Depot (NYSE: HD  ) gave out 5% of its 19 million options to five executives. Smaller amounts, same story.

Don't get me wrong, I'm not campaigning for all employees to get equal option grants. Obviously executives deserve greater compensation than other employees, including (if we must) stock options. My concern is with the disingenuous arguments from top executives that expensing or eliminating options will hurt the average employee and make it difficult to retain talented workers, while glossing over the windfall grants to themselves. It's a deceptive maneuver to steer public attention away from the real issue: excessive, unreported executive compensation.

Fool contributorChris Mallonprefers honest management, and of the companies mentioned here, he owns shares of Home Depot through his private investment partnership.


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