Handicapping the Stock-Option Sweepstakes

Options are widening the earnings gap between France's top managers and ordinary employees

In France, talk of money is still somewhat taboo. But with the growing interest in stock options and company shares for employees, money is becoming a popular topic. As a result, the gaps between employee assets and capital gains are also becoming wildly apparent.

A recent study carried out by French consultancy firm stock-option.fr and published exclusively by Le Monde, shows how stock options, reserved on average for only 1 out of 100 employees in France, continue to widen pay gaps within French companies.

Taking figures from companies listed on France's CAC 40 index, the study gives a clear idea of who can expect what kinds of gains, whether they be employees with company shares, regular stock-option holders, or CEOs with stock options.


  Stock-option.fr also compares figures over a period of up to one year in order to show the effect the stock market roller coaster has had on everyone across the board. And because the numbers make it increasingly obvious that employees who own company shares are at a clear disadvantage compared with the privileged few with stock options, a new debate is likely to arise in France regarding employee rights to own stock options.

Stock-option.fr's study puts the numbers on the table. Taking figures from annual reports of CAC 40-listed companies, stock-option.fr found that the 37,649 stock-option holders it came across could count on a "potential" capital gain of $6.8 billion as of the end of February.

This contrasts with the $9 billion potential gain in June, 2000, and the $7.5 billion at the beginning of last year. Today, the average stock-option holder can count on a potential capital gain of $180,420.


  At the beginning of last year, that number was at $200,000, before reaching $240,560 in mid-2000. One step up, a stock-option holder on the executive committee can count on potential gains of $3.9 million today, compared with $4.9 million at the beginning of 2000 and $5.4 million toward the middle of last year.

For CEOs, numbers are a bit more difficult to come by. Although CEOs will soon have to publish the sum of their stock options in their companies' annual reports, the value of their capital gain is not known on an individual basis. In the best-case scenario, only the sum allotted to the entire executive committee of a company is published.

Among the companies studied by stock-option.fr, the average number of executive board members is 11. An unwritten rule in most French companies is that the CEO receives five times as many stock options as a regular member. On this basis, the 34 CEOs in the study can be expected to receive, on average, $14.3 million in potential capital gains each, down from $17.5 million at the beginning of last year and $19.8 million in mid-2000.


  Everyone has clearly been affected by the stock market's moves. This, of course, includes employees with company shares, but that's just about where the parallel with stock-option holders begins to diverge. Regular employees with company shares are, indeed, in a different ball game altogether, and not much attention is paid to them.

In fact, annual reports contain neither the number of employee shareholders nor the capital gains from the stocks they bought as part of a company savings plan. However, by looking at the 14 companies listed on the CAC 40 index where employees hold at least 3% of the company's capital and where at least one employee in four has bought company shares, it has been possible to trace the pattern of an employee's share value.

Counting from the end of February, employees at these 14 companies, which include AGF, Aventis, BNP Paribas, Bouygues, Crédit Lyonnais, France Télécom, Renault, Saint-Gobain, Schneider, Société Générale, TF1, Thomson Multimédia, TotalFinaElf, and Vivendi Universal, have invested $17.85 billion in their companies' stocks.


  That number was at $22.33 billion at the end of June, 2000, meaning that the value of their assets has dropped by 20.3% over eight months. Looking at these 14 companies, it can be estimated that there are roughly 800,000 employees that own company shares and that, on an individual basis, an employee's share assets are worth $13,986. That figure has dropped $3,762 over the past eight months and $1,307 over the past 14 months.

The stock market roller coaster has put a damper on everyone's asset values, but it has affected employee shareholders in particular. As Raymond Soubie, founder of the French consultancy firm Altedia, points out: "A stock market drop does not at all have the same impact on someone for whom the hope for gain has been slightly tarnished and for someone who has invested money from his own pocket as part of a company savings plan."

But now that the numbers are out and people are talking, things are sure to change. "Companies will reorganize stock options and employee stock ownership programs on a basis that will compensate stock market drops. I think that many companies will start to distribute stock options as a salary increase in order to reward employees who buy shares, like Alcatel did," explains Soubie.

Now the question to ask is: How much that will actually be, and will it be enough to narrow the earnings gap within French companies?

By Adrien de Tricornot

Tranlsated by Inka Resch

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