Conference 7.286::digital

    The following has been summarized and/or directly quoted from a
    news story in a recent issue of USA Today:
    
    PepsiCo opts for bold stock-option plan
    by Calvin Lawrence Jr. 
    USA Today
    
    The "Pepsi Challenge" is back -- this time in the form of PepsiCo
    Inc.'s bold new stock-option plan for nearly all of its 100,000
    employees.
    
    PepsiCo calls its plan "SharePower". Whether other big firms have
    the stomachs for such broad-based incentive plans remains to be
    seen, compensation experts say.
    
    Not one of 200 major firms surveyed last year by consultants Towers
    Perrin offered stock options to more than 35% of employees.
    
    PepsiCo's toughest test awaits: helping a bottling plan worker or
    truck driver grasp the intricacies of a benefit that's typically
    reserved for executives.
    
    "Half of the executives don't understand these vehicles," says Webb
    Bassick, compensation expert at Hewitt Associates in Lincolnshire,
    Ill.
    
    Stock options give you the right to buy stock in your company at
    a specified price within a certain time period. The theory is simple:
    give workers a stake in the firm and they'll 'act like owners, not
    caretakers,' PepsiCo says.
    
    Its employees, including those at subsidiaries such as Pizza Hut
    and Frito Lay, will be granted options each July 1 to buy stock
    worth 10% of their prior year's pay. The options give workers 10
    years to buy PepsiCo stock at the July 1 price; 20% of the options
    are exercisable each year, and they're cumulative.
    
    Say the stock price is $50 when an employee is granted options for
    100 shares. Five years later, the stock trades at $100. The employee
    can use those options to buy 100 shares for $50 each, and keep them
    or sell for $100 each and realize an immediate profit of $5,000.
    
    Sounds easy. But consider the story of a shop foreman in the Louisiana
    plant of a major company, says Bassick. The man's money-saving
    suggestions earned him 10,000 stock options at $3 a share. The stock
    eventually rose to $140, but he missed the deadline for exercising
    his options. Why? He said, "Where was I going to get $30,000 to
    buy stock?" says Bassick.
    
    The employer had failed to explain that any bank would have lent
    the money, given his guaranteed profit of $1.37 million.
    
    PepsiCo recognizes the potential for such miscues and is taking
    steps to explain the plan clearly. "We're taking this to a localized
    level -- face-to-face meetings with employees", say PepsiCo spokesman
    James Griffith.
    
    There's plenty to explain: Employees are responsible for deciding
    when to exercise their options -- PepsiCo can't do it for them.
    Also, taxes are owed on any gain once the options are excercised.
    
    One thing PepsiCo will do to make things easier: Employees can use
    any gain on their options to pay for shares, rather than cough up
    the cash.
    
    Experts doubt that many firms the size of PepsiCo will follow its
    lead. Such incentive programs only work in enviroments that emphasize
    teamwork and individual contribution, they say. "It's going to be
    used selectively by some public companies -- those that are conducive
    to a participatory management style," says William Offutt III of
    consultants Grant Thorton.
    
    
    
		    GIVING OPTIONS VS. GIVING STOCK OUTRIGHT
    
    
   	
    A leader in flexible benefits, PepsiCo could just have easily given
    stock to workers rather than options to buy stock later. Why it
    didn't is a matter of giving something away vs. motivating someone
    to earn it. 
    
    "Stock options provide a much stronger link to performance," says
    PepsiCo spokesman James Griffith.
    
    Used widely as a form of executive incentive, options are intended
    to make employees want to work harder. The rationale: They'll benefit
    from any rise in the stock's value that they help to create by
    improving the firm's performance.
    
    There's also a psychological effect that PepsiCo is hoping to achieve.
    By using options, it forces employees to be active shareholders.
    PepsiCo hopes that will make them more interested in the firm's
    performance than if the stock were simply given to them outright.
    
    
    

    This sounds like DIGITAL's "RSOP":
    Restricted Stock Option Plan. The rules of granting RSO's escape me,
    but from personal experience I noticed that during 17 years of
    "individual contributor's" life I never got close to any, whereas
    as soon as I was promoted to manager I got one.....
    
    I don't believe that extending the RSOP the "PEPSI way" would change
    a lot the commitment of Decie's to contribute to the success of 
    the company. In my humble opinion the majority of my fellow employees
    (be it IC's or "officers") don't need to feel like stockowners to
    work hard.
    HOWEVER,
    Given that "paying for performance" becomes somewhat a myth that
    DIGITAL can't afford anymore, granting stock options could be used
    to reward individual (sometimes exceptional) performance, without
    having to care so much about position in the range, salary base
    lines etc. etc....
    I don't understand much about Stock and Shareholders, but I sure
    wouldn't mind knowing that DIGITAL is owned by it's best performers
    (such as K.O ?)
    Fred 

    
    In theory, Digital's RSOP rewards those who have performed well
    who are themselves part of an organization that has performed well.
    
    PEPSICO's new plan seems to leave everything at a status quo ie
    everyone gets to get in even the slackers. 
    
    I don't think that I act differently as an employee because I am
    a shareholder and option holder. Others might ...
    
    -1 seems to reflect my own experience although it may well vary
    frm organization to organization - few individual contributors get
    RSOP rewards
    
    I'd rather see us organize for productivity and retrain and redeploy
    people where they are needed - that positions us for the future
    - just making stock available may not accomplish that
    
    

    You don't have to be a manager to have RSOP from DEC.
    
    I'm not and I do.
    
    /s/ Jim Williams

    I received Digital Restricted Stock Options as a manager for ten
    years.  To my experience, and I know there are always exceptions,
    all managers, regardless of performance, got the options; no one
    else did.  It really came to be perceived as just another benefit.
    
    I'd like to see top individual performers get options also, but
    it would be tough to administer.
    
    I'd much prefer quarterly profit sharing ala Hewlett-Packard.....
    or a real suggestion awards program ala IBM.

	Personally, I think the stock option plan for top performers is
	an excellent idea. When it comes to raises and you are in a
	group of top performers, there is never enough money to go
	around to adequately "pay for performance". I also think that
	giving high raises to top performers takes some incentive away
	from constantly performing at the top (IMHO). I would like my
	manager to be able to give me stock options in the year I do
	well.

RE: 0

	Please correct me if I'm wrong:  While PepsiCo seems to be at least
	TRYING to explore new avenues for increased "productivity" (I've
	always hated that word) or at least to get employees to honestly
	feel like they are a part of the organization, what have we done?

	1) Froze salaries in the US
	2) Froze ALL RSOP's Worldwide

        Analysts and mgmt consultants used to compare DEC to Pepsi all the
        time (the #2 syndrome, along with Avis and Burger King).  Seems
        to me like PepisCo is still trying to be innovative while our knee-jerk
	conservatism and the executive committee's apparent inability to
	get costs under control are becoming, increasingly, less popular. 

later...
 jim

    re: 
> 	Seems
>       to me like PepisCo is still trying to be innovative while our knee-jerk
>	conservatism and the executive committee's apparent inability to
>	get costs under control are becoming, increasingly, less popular. 

	i agree, as most (>50%) of our costs are salary related, and:
	you can't fire them, you can't tell them to work more, then...
	we better work *smarter*, that is spend less time duplicating someone
	else's job or doing useless things.

RE: Note 878.6       <I am for stock options for top performers >-
>	Personally, I think the stock option plan for top performers is
>	an excellent idea. When it comes to raises and you are in a
>	group of top performers, there is never enough money to go
>	around to adequately "pay for performance". I also think that
>	giving high raises to top performers takes some incentive away
>	from constantly performing at the top (IMHO). I would like my
>	manager to be able to give me stock options in the year I do
>	well.

	i *strongly* agree, i have seen dozens of very_well_paid executives
	(due to their *past* performance or *wrong* hiring) just sitting 
	doing almost nothing, if the good performance was paid with stock
	options, year by year, and *lower* (zero?) salary increases, than
	people would be incentivated to do better each year!

	Bruno

    I DON'T UNDERSTAND WHY A MINORITY HERE ARE ALWAYS COMPARING DEC
    TO IBM,PEPSICO OR ANY OTHER.I AM ONE OF THE PEONS WHO IS VERY GREATFUL
    IN HAVING A SECURE JOB IN THESE TIMES OF INSECURITY.THE BOYS IN
    THEIR IVORY TOWERS AND MOUNTAIN TOPS WILL ALWAYS GET THE PERKS AND
    THE ONLY THING WE GET IS WHAT FLOWS DOWNHILL...
    

    A secure job is in the same bracket as a free lunch ...
    There ain't no such thing.
    
    Mike Day
    

    Along the same lines as .10:
    
    "If you want job security, go work for the Postal Service..."
    
    			- Ken Olsen

    
    Re:  .7
   
>	1) Froze salaries in the US
>	2) Froze ALL RSOP's Worldwide

    
    The salaries in Canada are also in the freezer.
    
     

    RE: -1 and previous: 
    
    >	2) Froze ALL RSOP's Worldwide

    ???.  Last time I looked the RSOP deduction was still being made
    from my paycheck, as per the past 9 years.  What is going on - or
    what don't I understand?  I am guessing someone is confusi different
    plans.
    
    Not a manager, Fred ( except <maybe> myself! )

    You're probably thinking about the ESPP - Employee Stock Purchase
    Program.  In the RSOP, you're given the options - you don't have money
    taken out of your paycheck to pay for anything.
    
    Michael Moy

    
    It's my observation that the problem with the existing stock option
    plan is its subjectivity. Organization X gets Y shares to be given
    to managers as stock options for period Z. The problem is that the
    top managers of organization X take all the options before they
    flow down to lower-level personnel. There is, to the best of my
    knowledge, no company policy regarding the distribution of these
    options -- it's entirely subjective on the part of upper management.
    
    It has also been my observation that there is no demonstrable
    positive correlation between a person's managerial ability and the
    amount of stock options he/she gets.
    
    Just one opinion ...
                                                   
    
    KBS
    

    Digital's RSOP is intended to reward selected individuals who 
    have been perceived* to have delivered outstanding performance in
    the recent past.
    
    PepsiCo's new RSOP program is designed to provide an incentive for
    outstanding performance on the part of all its employees (who all
    earn some amount of restricted shares based on profits and their
    other compensation). It does NOT preclude *additional* options based
    on individual contribution as practiced at Digital.
    
    PepsiCo's plans intent is to STIMULATE, MOTIVATE and ENCOURAGE.
    
    Could it work here? 

    Bob
    
    * See Reply .15 by MRMARS::SHERMAN with emphasis on observations
      regarding "subjectivity"...