Cover Story

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

Drucker is a reporter-at-large for Bloomberg News.

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