11/02/98 REPRICING STOCK OPTIONS: WHO WINS, WHO LOSES?

REPRICING STOCK OPTIONS: WHO WINS, WHO LOSES?

I read with great concern ''How to reward failure: Reprice stock options'' (News: Analysis & Commentary, Oct. 12) and ''Wall Street's soft dollars: Only a ban will do'' (Finance, Oct. 12). The subjects covered there and the number of extremely high salaries and bonuses paid top management of public companies today make me wonder what an individual investor can do.
I have a retirement portfolio made up of 92 stocks and mutual funds plus fixed-income investments, and I feel that I am at the mercy of highly paid Wall Street players. As a stockholder, I vote each opportunity I have concerning officers and proposals, but I do not feel that my vote--or any individual investor's vote--has any effect. I continue to read of corporate management taking advantage of us, and I am frustrated. Do we need an association of individual investors to fight our battles? How do we get a say?

Hamilton O. Beardsley
La Mesa, Calif.

The example of repricing stock options for Cendant Corp.'s chief executive seems to be a reward for failure. But Cognex and the vast majority of companies that I know of reprice employee stock options carefully with the clear objective of attracting, motivating, and retaining key talent.
In many cases, a stock price suffers because of uncontrollable global events. Cognex's stock price--along with many other high-tech stocks--has plummeted to a fraction of its 52-week high because of the recent global downturn in the semiconductor capital-equipment industry and because of the Asian financial crisis. As a result, stock options held by our employees who have a $36 exercise price are underwater and no longer serve to motivate them to work hard and stay on until events improve.
Instead, those employees can readily find employment elsewhere, where they will get new stock options having an exercise price at the current market value. And any new employees we hire to fill those vacancies would, of course, get new Cognex options at today's market price. If we are willing to give new options at the current market price to new employees, then why not save all the effort of hiring new people and simply retain the current employees by repricing their underwater options?

Robert J. Shillman
President and CEO
Cognex
Natick, Mass.

The repricing of options is obviously an affront to the concept of pay for performance, the theory under which wildly excessive executive largesse is sold. The whole concept of compensation via options should be revisited. Options may not even align the incentives of the executive with those of other stockholders, since an executive with a large number of underwater options has a great incentive to bet the farm on a risky but potentially profitable venture. Instead of options, why not grant stock at market prices, in which the executive is not vested for a specific period of time (or until separation)?
I cannot do much as an individual stockholder, but until there is more transparency and stockholder protection in executive compensation, I will always vote my proxies against provisions for executive options.

David Hunt
Roanoke, Vir.