Now, A Big Job At Kodak Means You'll Buy A Big StakeGrace M. Kang
Ever since executive pay took off in the 1980s, shareholders have wondered how to forge a stronger link between pay and performance. Bonus plans tied to the bottom line have helped. And stock-option plans have helped wed executives' fortunes to those of shareholders.
Now, a growing number of big corporations are deciding that it's time for an even stronger bond between executives and shareholders. That's why Eastman Kodak Co. announced on Jan. 13 that its top 40 executives will be required to invest the equivalent of one to four times their base salary in Kodak stock. Kodak Chairman Kay R. Whitmore says he will buy stock equal in value to four times his base salary of $957,693. Major share ownership means that "senior managers will act and behave like owners of this company--because they will be substantial owners," Whitmore declared in a statement.
That may sound a bit wishful, but Whitmore isn't the only chief executive officer who believes major executives should be major shareholders. Xerox Corp. also requires senior executives to own stock. Household International Inc. has a similar policy, while others have less formal guidelines. Executives at big companies, such as CSX, Gerber, American Express, and Chrysler, are "encouraged" to own stock. And to ensure compliance, many companies tie future pay hikes and job perks to meeting stock-ownership goals.
QUICK CASH-OUT. Such policies are a tacit admission that stock-option plans aren't enough. Many companies that liberally offered options to executives have found that managers tend to cash out quickly. That was especially true in 1992, when many executives feared that President Clinton would impose a tax on high executive salaries.
Some executives question whether a company has the moral authority to tell employees how to spend their own dough. But so far, no executive has been known to challenge stock-ownership requirements. If anything, the rate of compliance is high. At CSX Corp., 167 out of 170 senior managers have met the company's goals by purchasing stock equivalent to twice their salaries. The three who haven't complied have been exempted because of personal financial reasons.
For their part, Kodak's brass may want to get in on their company's climb. Over the past 20 days, Kodak stock has zoomed up some 17%, to around 49. And it may continue to rise if Kodak's latest restructuring works out. Of course, if the stock sinks, managers could start complaining that their wealth is wasting away. But then, that's what Kodak shareholders have been doing for some time.
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