Mullaly awarded option to buy 5 million shares of Ford stock
When Ford Motor Company CEO Alan Mulally joined team Ford back in 2006, Blue Oval stocks were trading at $8.36 per share. But a very bad recession and an especially hard hit auto market have torpedoed Ford shares to their lowest levels in decades. With stocks hovering around the Mendoza line, Mulally has the opportunity to make some real coin, as he's been awarded the option to purchase five million shares of common Ford stock. The shares, should Mulally decide to buy, would be offered at $1.96 each. The shares are already valued at $2.19 each, but Mulally wouldn't be able to cash out his stock options like a traditional share. He would be eligible to cash in one third of the stocks after one year, two thirds after two years, and all the stocks after three. If Mulally makes good on his plan to turn the company around, the stock value could skyrocket in the meantime. That would help Mulally make up some of his 30% pay cut in 2009.
[Source: Automotive News, sub. req'd | Photo by ROBYN BECK/AFP/Getty]
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Reader Comments (Page 1 of 1)
Fleming in Tennessee 8:13AM (3/17/2009)
He's worth every penny and more if his plans turn out OK..... and they seem to be on track in these harsh times.
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IntoxicatedPuma 8:20AM (3/17/2009)
he's definitely worth every penny. Maybe AIG should offer their executives some stock instead of pay.
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David 2:24AM (3/18/2009)
Well, it seems like he is a very luck man to be in that position. I honestly believe Ford has the best chance for success out of the big 3.
C.W. 8:26AM (3/17/2009)
smart money says DO IT!!!
the industry WILL turn around and Ford is in the best position of all of them. With the product in the pipeline, the cost cuts, new union contract, global star is risiing (only car company in Europe that is continually growing market share).... Ford stock will absolutely rise and make this the money-making opportunity of a lifetime for Alan (not that he needs it).
Rockefeller said it best what stating that millionaires (in his time.... billionaires by todays standards) are born out of recession...
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Jei 8:57AM (3/17/2009)
I'd do it. The stock is at a rock-bottom price and if does go lower, it won't be much of a financial hit to his portfolio. But historically, these "ground level" stock prices have nowhere to go but up. Pretty much a no-brainer decision, I'd say.
If Ford's stock increased to at least $25 in the next three years, Mullaly's stock would be worth about 12x more than what he paid for it.
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Dave 9:41AM (3/17/2009)
Great idea! Give the guy some incentive to bust ass even more. Whether or not we like it, moneyis the best motivator. Especially when you can make millions off of a relativly small investment. Few people ever have the control over their portfolio he will have if he takes these options.
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robert bell 9:47AM (3/17/2009)
good for him. so far it appears the plan and decisions he has put in place since on the job has given Ford the best shot at surviving and coming out the other end, whenever that is, a smaller but much more profitable company. His decision to go global with design and plaform sharing was key; in a way, he simply did what the Japanese and Germans have already done, but what American car companies resisted up to the point of becoming irrelevant. Autos are a world market and you either think and behave that way or you go away.
This is one case where stock options are a worthy reward; he took a company which was going into the tank, put in place a sensible restructuring plan and is aggressively pushing his people to make the change necessary to survive and prosper. Any shareholder of Ford should be happy to reward him in this way.
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nardvark 9:51AM (3/17/2009)
This is how executives should be paid. Not some "bonus" that they get regardless of how the company is doing, but payment that rewards future success. It's amazing to me that corporate boards haven't seen the logic of this in recent history.
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Dave 11:24AM (3/17/2009)
Unfortunatly nardvark there are a finite amount of shares that a company has. If they just decide to "print" more it decreases the value of the ones in existance already. In that sense, stocks are just like paper money. They can and do suffer from inflation.The more you have of them, the less they are worth. Thats one of the reasons why shares for companies like Google are worth 330 bucks. There are only 315 million shares available to buy and sell. Compare that to a company like Ford that has 2.4 BILLION shares available. Yes price has to do with internals, balance sheets ect ect. But the # of shares in the market also has an effect on the price. Ford could easily cause their share prices to rise by buying back shares of itself and removing them from the market creating a demand for Ford stock. Lower supply= higher demand, higher demand= higher price. Basic econ 101.
While it would be nice to pay CEOs in stock options as a bonus, many times their work may not be seen for many many years. Its really taken over 10 years for Ford to get to this position. Back in the 90s when times were good, they were paying their dues with the modular motor series and other R&D work. That work is starting to pay off and is giving Mullaly a great base to work off of. But at that time people were ragging on Ford for not outpacing GM. Well its worked out a lot better for Ford than GM. And sometimes all your work can ruined very quickly by your successor. Being paid in stock is great in theory, but I know guys who were ruined when they took the stock options in Lehman. Nothing they could do, more importantly, nothing they could know because it wasnt their department. So as much as we would like to say pay them in stock, its not really feasable. If Im a CEO ill take SOME of my bonus in stock, but I dont want all of it or part of my salary to be in stock.
I dont think anyone here remembers, but there was a "Google Rumor" about one of the airlines last year 2008. And this "rumor" caused the price of the stock to plumbet like a rock. Turns out that it was COMPELTE BS. Not even fessable, not substaciated, nothing. Just released by a moron at Google. Never popped on CNBC, or on the sqwak boxes, just on Google. The reality is that a CEO is never in charge of a stocks price. He does his best to manage, but Ive seen too many times prices effected by BS.
why not the LS2LS7? 11:33AM (3/17/2009)
Actually, there's plenty of downside to paying your CEO in options.
The biggest is that the stock value of a company is often more related to the state of the economy than the performance of the company. So, you can end up paying a boob a lot of money because he was awarded shares at a bad time. Worse yet, you can authorize options for a good CEO when the economy is doing well and then have the stock price drop so much that the options will never be worth anything. Now the CEO is disincented. As a great example, I'm, sure Mullaly was given options when he started at Ford when Ford was worth a lot more and those are essentially worthless now. And as far as autoblog is concerned it is through no fault of his own. Thus he ends up with these additional options.
The other big problem with options is it gives companies incentives to lie about how well they are doing. Investors will trade a stock up of a company shows growth X number of quarters in a row. So companies jigger their books to show continual growth even if it isn't there. Sometimes they do it by channel stuffing or other tricks that move profit out of one quarter into another that isn't expected to be as good. Other times they just use accounting to flat out lie.
To me, the biggest concern is that for companies where the high-ups are paid based upon stock value, often the executives start acting as if their stock were their product. As an example, look at any of the .com companies during the boom. They lined up to go on CNBC to explain why their stock value should go up. Meanwhile, few of them had any real business going on at all. They were just trying to line their own pockets, regardless of the actual health of the company.
There has to be a better way.
For more info, read "Origins of the Crash" by Roger Lowenstein.
nardvark 11:50AM (3/17/2009)
Fine, then do non-stock profit sharing. Also, if your stock price is low, you don't HAVE to cash them in. Wait a year, hold on to your stake in the company, and sell in greener pastures.
There is a high correlation between inside ownership and company performance. It's not an accident.
nzo 10:00AM (3/17/2009)
Whats with the sweater? He looks like a supermarket bagger or something. Wear a nice suit like the successful car execs ;)
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Mazda FTW! 10:19AM (3/17/2009)
Haha.
But I do like the Ford logo on the vest tho. Preppy and corp. at the same time.
RyanD 10:55AM (3/17/2009)
I'll bet 5 million shares of FoMoCo that Alan doesn't pick his own wardrobe when out on stage and that he feels just as stupid as we think he looks.
Either way, he's doing a great job...keep up the good work Al.
John 11:24AM (3/17/2009)
Wow! 10 comments and not a single one bashing either the domestic auto industry or executive pay and bonuses.
Let's keep it going. Cheers for Ford!
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T-Eda 11:33AM (3/17/2009)
Why no bashing? Because Mullaly is the only CEO among the big 3 who is making smart moves, and the slow (positive) course change of his company is the result. Who can't appreciate good decision making and leadership?
the vegas style guy 11:33AM (3/17/2009)
And no union bashing either! Wow.
Good job M to the L!
Pardon me while I run out and buy some Ford stock!
harlanx6 3:02PM (3/17/2009)
Since they are not yet on welfare, the board of directors can still screw the shareholders at will. This maneuver dilutes the share value. This doesn't surprise me. What they are not telling is what the board of directors has approved for themselves to screw the shareholders.
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Matt 3:23PM (3/17/2009)
It is going to be hysterical when GM goes C11, and because of that, Ford has to go C11 as well.
Cannot wait...
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John 6:16AM (3/18/2009)
And what would you get out of GM and Ford going bust?