Evening star., 1951-05-11
Stock Option Plans
For Executives Stir
Debate by Holders
By Sam Dowson
Assecioted Press Financial Writer

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By Sam Dowson
Asseeioted Press Financial Writer
NEW YORK, May 1.-THE
marked trend toward letting Ger,
tain corporation executives buy
stock from the company on better
terms than they might be able to
|get in the open market has pro-
Ivided some of the bigger and bet
tier Stockholder management fights
this year.
The details are called stock op-
ton incentive plans. The incen-
tive part of the plan is based on
the idea that as a part owner the
executive will be interested in
making the most money possible
for the company. The trend to-
ward these plans is away from
the practice in other years of CIV
ing either pay increases or bonuses
20 top men.
Opposing stockholders say the
real idea isn't incentive" at ALL
but merely a scheme to get around
the steadily increasing personal
income tax rates, and that it gives
certain chosen men chance to
make millions" chance others
don't get.
United States Steel Plan Typical.
A fairly typical stock option
plan is the one just passed, after
much debate, at the United States
Steel annual meeting. 1t provides
that chosen key management en-
ployeS may buy stock from the
company treasury at the market
price on the day the executive Is
granted the right to buy. But he
has up to 10 years in which to
buy the stock-always at that
fixed price-and he may exercise
his option up to three years after
retirement.
The present Federal tax laws
provide that two years after the
option is granted and six months
after the stock is actually paid
for, the executive may sell that
stock without paying the regular
income tax rates. Instead. any
profit can be listed as long-term
capital gain, or any loss as long
term capital loss.
Under this plan, or under others
like it throughout industry, an
executive granted the right today
to buy 100 shares at today's price
may find two years from now that
the market price has gone up
$40 a share, he can buy it then,
still at today's price, and make
1000 on the deal by selling the
next day. But if he waits six
months more, the $1,000 is sub
ject only to a Is per cent capital
gains tax and he hasn't been
pushed up into a thousand dollar
higher personal income tax brack-
ct, as he would have if the COM
pany had given him $1,000 in
raise or bonus.
Arguments in Its Favor.
Arguments for the stock option
incentive plan are these:
By making it easy and profitable
for top executives to buy stock in
the company. they are induced to
feel like partners in the concern.
Thus, their own interest is served
in helping the company prosper.
Many companies fear the grow
ing shortage Of top executive
material as demand exceeds the
supply of Al men. The stock
option plan. with it's tax benefits,
makes it easier to compete with
other firms for new personnel.
Also, as Republic Steel pointed
out at the annual meeting this
week, it makes it easier to keep
top personnel from leaving. Raises
and bonuses aren't as attractive,
because of the high income tax.
And outright gifts of stock come
under gift tax and lose much
OF their value.
Against this, some stockholders
have asked how much incentive
actually is provided-will the
executive really hold the stock?
A stockholder at the Radio Corp.
OF America annual meeting said
that the executives may make
millions if the stock goes up-and
they have no commitment if the
stock goes down"
Advancing Age Noted.
At other meetings stockholders
have asked: Why not cut all en-
ployes in on the deal? (Of course,
many companies do have employe
stock-buying plans, and many al
low purchases below market
price, and why not let stockhold-
ers have the same option to buy
at a fixed price if the stock goes
up? But these questions seem un-
likely to be given much attention.
With an eye on the advancing
age Of many directors and execu-
tives, some stockholders ask if a
top mans estate gets the stock.
where Is the incentive benefit the
company is supposed to get?
But in most cases stockholders
have voted overwhelmingly for
the stock option plan. Many ap-
pear to figure that if directors and
top men own stock they'll work
harder for the company, and be
more liberal in voting dividends,
n which they'll share.
And behind it all, stockholders
as well as management are aware