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Eisner's Payout Just the First of Hefty Rewards

Trends: Options packages are likely to get fatter, fed by bullish markets and rising executive compensation, analysts say.


Once again, Michael Eisner and Walt Disney Co. are at the cutting edge of a corporate trend.

But unlike in the past, there's a lot of debate about whether that's a good thing.

A day after Disney's chief executive exercised a $565-million options package, compensation experts predicted Thursday that other chief executives will reap similar paydays by selling billions of dollars in options accumulated in recent years.

Few executives have packages worth as much as Eisner's, but a couple have options currently worth at least $400 million and a half-dozen others have deals nearing $200 million, experts said. What's more, the ongoing bull market and steadily rising level of executive compensation make it likely that options packages will grow to the point where one day they might routinely dwarf Eisner's.

"Eisner was the first one on the block to get that large an options award, but other executives are starting to get options awards of that measure," said Judith Fischer, publisher of Executive Compensation Reports newsletter. "In a few years, Eisner's won't seem so big."

Eisner's package has rekindled the debate about executive pay that reached a fever pitch in the early 1990s, when executives reaped huge profits from options even as millions of American workers were losing their jobs in downsizings.

Companies defend the deals by saying executives are being rewarded for good performance that has caused their stock prices to rise. But critics say the granting of options has become so generous and the market's rise so broad that even leaders of poorly performing companies are generating enormous payouts.

"Just because the market goes up 30% a year doesn't mean every company goes up 30%," said Graef Crystal, an executive compensation expert. "There are plenty of companies where the stock rises 5% and yet the CEO has his snout in the trough and is taking home plenty."

One executive, Henry Silverman, chief executive of HFS Inc., holds options worth more than Eisner's, valued at more than $700 million, Crystal said.

Charles Wang, head of Computer Associates International Inc., has options topping $400 million and Travelers Group Inc. chief Sanford Weill has a package worth $323 million, Crystal said.

Those numbers are a bit misleading, however, because they show only options that haven't been exercised. Weill, for example, has sold options worth $245 million since 1992, Crystal said. If he had held on to them, his current package would be equal to Eisner's.

Several others, including the heads of HealthSouth Corp., Mirage Resorts Inc. and Oracle Corp., hold options worth $100 million to $200 million, according to Executive Compensation Reports.

Eisner's decision to unload his options comes at a time when insider selling is on the rise. Historically, insiders--who are defined as top executives and company directors--sell two shares for every share they buy.

Since July, that ratio has hovered around 3 to 1, experts say. Such selling is somewhat bearish, because insiders historically have sold in advance of market tops. However, they often unload their shares well before the market peak.

Corporate executives appear to be unloading shares because they are nervous about the lofty level of the Dow Jones industrial average, which jumped back above 8,000 on Monday, said Richard Cuneo, editor of Vickers Weekly Insider Report.

"It could just be profit taking," Cuneo said. "It doesn't necessarily have to forebode a market crash or correction.

Eisner exercised options for 7.3 million shares that were granted to him in 1989. In 1992, he made $202 million, most of it from options.

Despite the criticism that ensued, options grants have continued to spiral. Companies feel that to attract the best candidates they must dole out ever-larger options packages, Fischer said. And at least while the bull market continues, institutional investors have little desire to rein in the packages.

Defenders of the options packages say they represent several years of compensation and executives can't help but make news when they sell.

"They've got big options packages and they've got to sell them at some point," said Robert Gabele, whose newsletter, CDA/InvestNet, follows insider sales.


* EISNER OPTIONS: What Michael Eisner did with his Disney options, and why. D4

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