CA Drafts Plan to Drop Options - TheStreet

CA Drafts Plan to Drop Options

Computer Associates wants to compensate directors with restricted stock instead.
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Computer Associates

(CA) - Get Report

is turning up its nose at stock options in the board room.

Under a plan that will go for a vote before stockholders at their annual meeting Aug. 27, Islandia, N.Y.-based Computer Associates is proposing to replace stock option compensation for nonemployee directors with shares of stock. Nonemployee directors would receive a total annual pay package equivalent to $150,000, with at least 50% of that paid in the form of deferred stock units payable when the director's term is up. Each director would be able to elect at the beginning of each year to take up to half of his or her annual fee in cash.

Previously, nonemployee directors each received options to buy 6,750 shares of stock, valued at $49,000 in 2002 under the Black-Scholes option pricing model.

The new plan is the result of a review of director compensation begun late last year by the CA board's corporate governance committee. "In view of various factors, including recent studies indicating that stock options may not provide the best means of aligning the interests of directors with those of stockholders -- and that other forms of equity compensation may provide more appropriate incentives to directors -- the Committee determined that stock options should be eliminated as a form of director compensation," the company wrote in its proxy statement filed with the

Securities and Exchange Commission

Monday.

Up to 761,858 shares may be issued over 10 years under the new compensation plan. Eight of the company's 10 board members would qualify for the new plan.

Computer Associates, which already expenses employee stock option compensation, is the latest company to rework its stock options policy -- although it has not dumped options altogether. Earlier this month, software colossus

Microsoft

(MSFT) - Get Report

announced it is eliminating all employee stock option pay and instead will issue restricted shares to both rank-and-file and executive workers.

Computer Associates has been focusing on improving its corporate governance policies since being criticized for changes in its accounting practices, which prompted an investigation by the Securities and Exchange Commission and the U.S. attorney's office.

In its proxy statement, the company also disclosed that executives received two stock option grants in fiscal year 2003 after receiving none the prior year. CEO Sanjay Kumar elected to receive slightly more than half of the options he was granted at a higher exercise price than other employees. He received 1.4 million options in fiscal year 2003, which ended in March.

Kumar also earned a $1 million base salary in fiscal year 2003, the same as the previous year. Similar to fiscal years 2001 and 2002, he turned down his bonus, which would have been an additional $1 million in 2003, and asked the board to distribute an unspecified amount to the company's executive team.