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With more than half of all stock options granted in the '90s underwater, you can bet the boss is finding other ways to get paid. So should you — when your turn comes through a job switch or promotion. The very latest in executive comp includes an old standby: more cash. But companies are giving in ways that fly beneath the radar as well, including enhanced retirement deals, generous prearranged severance (just in case!) and cash back for relocating.
Let's deal with stock options first. As disappointing as they have been, now is precisely the wrong time to give up on them. The stock market will probably begin recovering this year. If your company is positioned for better times and you intend to stick around, get as many stock options as you can. Only if you don't like your or your company's prospects should you ask instead for other kinds of noncash compensation — while you hunt for a new employer.
Another reason to grab stock options today is that they may not be available tomorrow. By next year it is likely that accounting standards will require publicly traded companies to reduce earnings by the value of options they grant going forward. Most companies do not expense options now, and in polls one-third of companies say they will get stingier with options once they must account for them as an expense, reports Mercer Consulting.
That said, top executives usually arrange to be paid in the most rewarding fashion, and stock options are a declining slice of their pay pie. On the rise are annual cash bonuses, restricted stock (shares that vest over time) and long-term cash and stock incentives (based on performance over three to five years). Such goodies will trickle down to a broader set of employees eventually, as stock options did in the '90s. But from vice president on up, you may get them now if you ask. When options are counted against earnings, their cost to the company typically runs one-third the cost of restricted stock. So if you received 3,000 options last year, you could instead be in line for 1,000 restricted shares this year. The best part: restricted stock retains far more of its value as a stock price drops.
Stock options' fall from grace offers a valuable lesson. Top execs have been getting them for decades, and in most cases their options have turned to gold. But the explosion in broad-based stock-option plans occurred after 1996, when the jig was all but up. Today around 9 million employees are in these plans, and at least half their options have strike prices (the point at which they make money) above where the stock now trades, says the National Center for Employee Ownership. In some cases, option grants replaced profit sharing, a bonus or increased 401(k) contributions.
Lesson: it pays to get paid like the boss. What's possible? Despite a recent furor, "loans that might eventually be forgiven are still on the table," says Peter Hillman, a partner at Chadbourne & Parke, an international corporate law firm based in New York. Likely candidates for loans include sales execs, who may land a sign-on bonus too. Also on the table for V.P.s and up: club memberships, private-school tuition and a relocation deal that puts cash in your pocket.
The latest wrinkle in CEO pay is boosting pension benefits by giving credit for unserved years and using total comp — not just salary — to figure final pay. John Snow, the new Treasury Secretary, got such a deal when he retired as CEO of railroad CSX. You probably won't. But you might negotiate a higher annual benefit — say, 70% of final pay instead of 50%, says Richard Bayer, chief operating officer at the Five O'Clock Club, an outplacement firm.
More new hires are demanding a sweet severance deal up front. "The manual probably says you get one week's pay for every year of service, but that's not practical" with no-fault layoffs, Bayer says. You should get a flat six months' pay, along with company-paid health insurance and career counseling. None of this is as good as cash. But no one needs to tell you to get as much of that as you can.
- Daniel Kadlec