Monday, March 12, 2012

Exec pay | Stock options are no longer an option

In a big change in how it pays the top brass, Gannett has jettisoned one of Corporate America’s most widely used forms of stock-based compensation, according to the new annual report to U.S. securities regulators.

Under a new arrangement, the company is no longer offering stock options. Instead, executives will now receive “Performance Shares” of company stock, which recipients will be able claim three years after they’re first awarded.

The earlier form of payment, stock options, gave executives the right to buy shares from the company at a fixed price, no matter how high they traded on the open market. Typically, they’ve represented a big part of what executives got paid each year.

In 2010, for example, Gracia Martore received total compensation of $8.2 million when she was president and chief operating officer, before being promoted to CEO last fall. The single-biggest portion by far was the $2.8 million estimated value of options she received.

Options have plenty of critics. They’re meant to align the interests of management and shareholders by encouraging executives to keep share prices moving up. But that can tempt executives to make risky bets. Plus, prices sometimes rise for reasons unrelated to a company’s prospects, turning options into a largely unearned executive windfall.

What the report says
Here’s what the annual 10-K report says about the new plan:

“During 2011, the company established a performance share plan for senior executives pursuant to which awards were first made with a grant date of Jan. 1, 2012. Under this plan, the company may issue shares of company common stock (Performance Shares) to senior executives following the completion of a three-year period beginning on the grant date (Incentive Period). Generally, if an executive remains in continuous employment with the company during the Incentive Period, the number of Performance Shares that an executive will receive will be determined based upon how the company's total shareholder return (TSR) compares to the TSR of a peer group of media companies during the Incentive Period. By tying the payout of the performance shares to the company's TSR, executive compensation is aligned with shareholders' interests. Going forward, long-term equity awards – consisting of performance shares and restricted stock units – will generally be made with a grant date of Jan. 1.”

The 10-K doesn’t say how the TSR will be calculated. And it doesn’t say which companies will form the peer group.

Whatever the formula, it now appears a round of awards granted Jan. 1 to Martore and 12 other executives are those Performance Shares.

But they aren’t worth anywhere near as much as stock options granted in previous years. Martore’s, for example, were worth only about $770,000, based GCI’s trading price at the time. Compare that to the $2.8 million in options she got a year ago.

What does that suggest? 
Perhaps much more of executive compensation will be paid in cash.

We won’t know for certain until later this month, when Corporate releases the annual proxy report to shareholders. It details how much the company paid to at least the five highest-paid executives.


  1. They still get paid dividends on the shares even though they dont own them. more $$$.

  2. Iptions can be worthless. these are not. plus you get the dividend too. better deal for those at a co like gci

  3. There apparently also can be worthless if they don't beat some of the peer group.

  4. You wrote about the new peer group a couple weeks ago in reference to a previous filing.

  5. 11:38 I suspected as much. You're referring to this post.

  6. Gannett has not eliminated stock options.

  7. 4:01 That doesn't square with what the company says. This is from Page 102 of the 10-K:

    "The company discontinued annual stock option grants to senior executives in connection with the adoption of the performance share plan."

  8. You don't get dividends on stock awards that haven't matured. Take a business class

  9. Here's a comment to Gannett top brass: Dig into those deep pockets and buy some GCI stock with your own cash. Sure, you have lots of GCI. But none you paid for yourself. You think the company will become a growth company? Put your money where your mouth is.

    A few directors have done just that. Martore? Nope. Hunke? Nope. Banikarim? Nope. Beusse? Nope.

    Come on, big shots! You're being paid lots of money. Time to eat your own cooking.


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