Intel Gets Earful On Option Exchange - 17 Sep 2009

Intel Gets Earful On Option Exchange

Posted by Chris OBrien on September 17th, 2009 at 5:09 pm | Categorized as Docu-Drama, O'Brien, Strategy | Tagged as Intel

Earlier this year, Intel announced that it would let employees exchange options that were underwater. Since then, the announcement has apparently caused quite a split among employees who love it or hate it. So in a filing today, Richard Taylor, of Intel’s HR department, sought to address the hubbub:

“Before addressing specific questions, I’d like to share some
general thoughts. It appears that some employees have already decided
the program has no value to them; others have decided the
opposite and are vocal in their support. I have a simple request of all
of you - don’t be lemmings (i.e., don’t blindly follow others)!
By all means read all opinions voiced, but don’t be swayed by them.
Opinions offered are just that; opinions. They reflect personal views based on an individual’s experiences.

Let’s rewind a bit and see what’s going on here.

Back in May, Intel announced the options exchange. The Wall Street Journal reported:

“Intel Corp. plans to allow employees to trade in
underwater stock options, emulating moves by many other technology
companies in the wake of the stock market’s sharp decline.

The semiconductor giant, in a proxy statement filed Monday,
disclosed that 99% of options held by its employees are currently under
water — meaning they have no value because the company’s share price
has fallen below the exercise price of the options.”

Tough times. So why all the whining? Sounds like a generous deal, right?

According to Taylor, apparently many employees don’t think it’s
generous enough. One question from employees: “Why can’t Intel make the
exchange ratios more attractive for employees?”

Taylor’s answer: “To fulfill our commitment to stockholders we will
calculate the ratios using Black-Scholes and they will be what they
will be. To change this methodology would not only be unlawful it would
be unfair to our non-employee stockholders who cannot themselves
participate in any type of exchange program.”

Yes, wouldn’t want to go breaking laws regarding options grants, would we? No.

Next question: “Why is Oct. 2000 the cut-off date for eligible
options, which means that my ~$60 options that are expiring in April
are not eligible?” In other words, some employees who got options
during the go-go days of the dot-com boom will get nothing and like it.

Taylor responds: “The value of those 2000 underwater options is next
to nothing as they have a high exercise price and a very short time to
expiration.”

Taylor ends with a call to remember that stock options are supposed to be an incentive:

“Some employees may
incorrectly interpret this frequency of communication as a signal that
this program is a “large gift.” Please remember that the stock option
exchange program is not designed to provide immediate compensation for
underwater options. Rather, it is designed to give employees an
opportunity to benefit from potential stock price growth over the long
term and for the company to benefit from the retention, time and
dedication of our most valuable resource–you.

I am proud that Intel is offering
this program. It is the right thing to do for our employees; and I
believe it demonstrates the company’s investment in you. I hope you
feel the same.”

Meanwhile, Intel’s stock closed Thursday at $19.41, up from the $15.56 close on May 1.

http://www.siliconbeat.com/2009/09/17/intel-gets-earful-on-option-exchange/