The Option Option

An executive is negotiating his employment contract for the coming five years. The company might offer millions in shares. But who wants to pay taxes on millions in shares?

Better to take options. The executive owns the right to buy the shares at a time of his choosing; he's been compensated, but he hasn't paid any taxes. Gains from nonqualified stock options, the most common form, aren't taxed until the holder exercises them. That means the executive controls when and if the tax bill comes. It isn't just icing, either. Often, it's the cake. Lawrence J. Ellison, CEO of Oracle (ORCL), earned $250,001 in salary in 2010 and was awarded $61,946,500 in options.

Executives Who Do It
(CEOs or co-CEOs as of 2010)
Lawrence Ellison, Oracle
Philippe Dauman, Viacom
Michael White, DirecTV
Andrew Gould, Schlumberger
Dave Cote, Honeywell
David Pyott, Allergan
Marc Benioff, Salesforce.com
Sanjay Jha, Motorola
Richard Fairbank, Capital One
Howard Schultz, Starbucks
Jay Johnson, General Dynamics
Larry Nichols, Devon Energy
Muhtar Kent, Coca-Cola
Paul Jacobs, Qualcomm
James Rohr, PNC Financial
Louis Chênevert, United Technologies
Fred Smith, FedEx
Bob Kelly, Bank of New York Mellon
William Weldon, Johnson & Johnson
Clarence Cazalot Jr., Marathon Oil
Ed Breen, Tyco
David Speer, Illinois Tool Works
Bob Iger, Disney
Sam Allen, Deere
John Hess, Hess
Klaus Kleinfeld, Alcoa
Bob Stevens, Lockheed Martin
Rich Meelia, Covidien
Dean Scarborough, Avery Dennison
George Buckley, 3M
Daniel DiMicco, Nucor
John Donahoe, eBay
Michael Strianese, L-3 Communications
Ellen Kullman, DuPont
Ronald Hermance, Hudson City Bancorp
Rich Templeton, Texas Instruments
Alan Boeckmann, Fluor
Jen-Hsun Huang, Nvidia
William Sullivan, Agilent Technologies
Greg Brown, Motorola
Jim McNerney, Boeing
Michael McGavick, XL Group
Scott McGregor, Broadcom
Frederick Waddell, Northern Trust
David Mackay, Kellogg
John Brock, Coca-Cola Enterprises
George Paz, Express Scripts
Robert Parkinson, Baxter International
Shantanu Narayen, Adobe
Charles Davidson, Noble Energy
John Pinkerton, Range Resources
Gregory Boyce, Peabody Energy
Kevin Mansell, Kohl's
Richard Davis, U.S. Bancorp
Michael McCallister, Humana
Timothy Ring, C.R. Bard
John Strangfeld, Prudential
Eric Wiseman, VF Corp.
Theodore Craver, Edison International
David Cordani, Cigna
Chad Deaton, Baker Hughes
John Surma, United States Steel
Charles Moorman, Norfolk Southern

Next: The Bountiful Loss

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