DCX execs hold valueless options

Falling stock price undermines salary equalizer, incentive for performance

Optional plan
Number eligible: 5,900

Who: Board members, business unit heads, vice presidents and senior managers, if they head a department

Where: Half are in Germany, 38% are in the United States and 12% are outside either country.

DETROIT - The sharp fall in the price of DaimlerChrysler stock has left 5,900 of the company's executives worldwide holding hundreds of millions of dollars in stock options that have no immediate value.

The options, with a face value of about e479 million, or about $423 million at current exchange rates, can be exercised for the first time April 21. Conceived as a way to equalize the pay of German and U.S. executives - and as a carrot to enhance management performance - they are worthless at the current price of DaimlerChrysler stock.

The 17.3 million options entitle the executives to purchase DaimlerChrysler stock at e62.3 a share and sell it at e74.76, or about $66 at current exchange rates, assuming the shares rise to that price.

Moreover, if the shares hit the sale price, the option holder will be paid a 20 percent cash premium, raising the true value of the option to e 89.7 per share.

But DaimlerChrysler stock, which closed at e44.55 in Frankfurt last week, hasn't traded at e75 since December 1999.

Half of the options, which expire in 2010, can be exercised April 21, and all can be exercised after April 21, 2003.

"At current levels, the options are worth nothing," said John Lawson, auto analyst for Salomon Smith Barney in London.

"They are not fully tradable or exercisable, and may not be until they're close to the end of their life."

DaimlerChrysler's stock option plan is relatively new in comparison to plans offered by U.S. companies, which commonly use such plans to compensate top executives.

The former Daimler-Benz AG launched an option plan in 1998, prior to its acquisition of Chrysler, saying it was necessary "to ensure that management compensation is competitive to other international companies."

The biggest change to the plan came well after the Chrysler merger in early 2000, when the company was given shareholder approval to issue 96 million shares to senior managers by April 18, 2005, to be awarded in the form of options.

At the time of its inception, the option plan appeared to be a viable incentive. Although the company's share price had fallen far from its peak of $108.63 set Jan. 4, 1999, it was trading in a range of $66 during the first quarter of 2000.

But the stock fell hard in fall of 2000 and continued sliding after the company posted a third-quarter operating loss of $511 million and a fourth-quarter loss of $1.3 billion. The stock slammed into the bottom on Sept. 17, 2001, at a price of $25.60 a share.

The plunge has wiped out more than $74 billion of shareholder value.

In Germany, the terms of a bonus plan for executives can't be changed without shareholder approval, meaning the terms of the options cannot simply be rewritten. And any attempt to get shareholders to approve a lower threshold for exercising the options likely would meet with stiff opposition.

Said Lawson: "DCX management wouldn't dare ask for shareholder approval to change the terms of their stock option plan because it would show a lack of belief in their own recovery plan."

You can reach Diana T. Kurylko at dkurylko@autonews.com

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