Date: February 24, 1997 Source: Wall Street Journal, B4 Headline: "Most EDS Employees To Get Stock Options..." Summary Jumping on the broad-based stock option bandwagon, Electronic Data Systems Corp. announced a stock option plan that will provide option awards to virtually all of its 100,000 employees. Unlike many other major companies implementing similar plans in the past year -- including Chase Manhattan, BankAmerica, and Intel -- the options include a price appreciation requirement. The options become exercisable when the stock price increases a minimum of 50% above the grant price of $47.75 ($71.625). Regardless of price performance, the options ultimately vest in 10 years. Option awards will range between 10% and 25% of pay. CPM Observations EDS's share price and resulting option grant price reflect the significant drop in late 1996 from the all-time high of just over $63, a reaction to the company's announcement of likely slower earnings growth in the next few quarters. A return to recent highs would account for two-thirds of the price appreciation requirement of the employee stock options. Analysts' projections indicate the company will surpass the price threshold in 2 to 3 years. The price appreciation requirement with an ultimate 10-year vesting allows the company to avoid treatment of the options as a "variable award" under accounting rule APB 25 which, in absence of the ultimate vesting, would result in a compensation expense as the options accrue value. Many accountants, however, are questioning the validity of such lengthy vesting overrides and companies are cautioned to discuss this with their auditors before implementing a similar program. Ironically, all-employee option plans are not new to the technology sector, but large companies like EDS and Intel are just now coming full circle and joining the "trend" they likely helped initiate in their early days. Small and midsize technology companies consider it a "given" -- not a new idea -- to offer stock options to all employees. Just visit Silicon Valley. Index: alleeso.003 Recently in "Performance Bytes"... August 22, 1997 "Management Pay -- Unintended Consequences" The Economist, August 22, 1997 [strategy.002] March 7, 1997 "Performance Stock Options" Congressional Record, January 21, 1997 [alleeso.004] February 24, 1997 "Most EDS Employees To Get Stock Options..." Wall Street Journal, February 24, 1997 [alleeso.003] January 29, 1997 "American Air Pilots Asked to Agree to Arbitration" Wall Street Journal, January 29, 1997 [union.001] January 24, 1997 "A Tale of Two Compensation Strategies: (Eastman Kodak & AlliedSignal)" Fortune, January 13, 1997 [strategy.001] January 8, 1997 "Small Concerns Are More Likely to Pay Directors in Stock Than Large Firms" Wall Street Journal, January 8, 1997 [bdcomp.001] December 31, 1996 California Qualified Stock Options (CQSOs) State of California, Secretary of State (AB 3194) [alleeso.002] December 27, 1996 "All about EVA" CFO Magazine, November, 1996 [perfmeas.001] December 18, 1996 "Stock Options to Be Given to 69,000 Staff Members" (Chase Manhattan Corp.) Wall Street Journal, December 18, 1996 [alleeso.001]