by Leslie Tebbe
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Responding to the significant pay packages offered by today’s most competitive businesses, DaimlerChrysler AG announced on March 3 that it is extending stock options to 6,500 executives. And for the first time, Microsoft has offered different salaries to employees in different regions, paying 15 percent higher salaries in Silicon Valley.
Chrysler’s move is seen as an attempt to regain some strength after the automaker lost close to 30 percent of its value of over the past year. Executives can exercise the options when the company’s share price reaches $72.52, or 20 percent above its base price. (Three days after the announcement, Chrysler’s stock closed at $62.12).
For a long time, Microsoft could pay base salaries below market because its aggressive stock option plan more than compensated for the difference. But it has become so difficult to retain workers that Microsoft has increased the base pay of people working in Silicon Valley doing the same job as in the Redmond, Washington, headquarters.
These moves are further evidence of how old-line and not-so-old-line companies are having to change not just the amount they pay, but also the structure of pay, to compete in the new economy. Chrysler’s hope is to provide a foundation for better performance from existing managers, and a lure for more top managerial figures. One of Microsoft’s principal goals is retention.
In the spring of 1998, the Security and Exchange Commission upset institutional investors by passing a rule allowing companies to add new stock option plans without clearing the decision with shareholders, as long as 20 percent of employees were eligible. Daimler-Chrysler is one of several German companies to follow the lead of many U.S. companies in the wake of the new regulations.
Examples are everywhere. The Old Marriott and Procter & Gamble offered stock options in 1997. Toyota and Ford followed in 1998. Xerox offered some employees total compensation packages consisting of 25 percent stock options in 1999.
But Chrysler has added a twist that is becoming a trend among German corporations. Not only is the right to exercise the options limited by how much the stock has gained from its base price, but it also depends on the company’s performance in relation to a competitor index. Options become cheaper the more the company outperforms the index.
It doesn’t matter where you work: the Internet economy doesn’t exempt any company, old or new, large or small, from the new rules of compensation. Has the structure of your pay changed recently?
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