As a former shareholder of Ford Motor Co. who benefited handsomely from my two-year investment, I should not be one to criticize the payouts enjoyed by the automaker’s CEO.
But Ford’s autoworkers are a different matter, and chances are they’ll be hopping mad about Alan Mulally’s $34.5 million windfall from stock awards.
Here’s the backstory: CEO Mulally in 2009 was awarded almost 5 million stock options by Ford’s board of directors. It was a critical time for Ford. The company had posted its first profit in four years, and so in addition to his salary of $1.4 million (down from $2 million in 2008), the company rewarded him with the options.
But stock options are not cash; they are considered an incentive payout – benefiting the recipient only after achieving future goals (namely, increasing the stock price) over a period of years. In the case of Ford, the stock could not be exercised, or cashed in, for two years. That’s now.
So for the options to be of value to Mulally, the company’s share price has to be higher today than it was the day the options were granted. Ever heard the term “under water” in relation to stock options? That means that on day they matured, they are actually worth less than the day they were granted.
Not the case for Ford. In 2009, shares of the automaker were trading at just below $2 a share. Today it is trading at north of $12. There’s no water in this picture at all – that’s a six-fold increase. Sales, meanwhile, advanced to $136 billion in 2011 from $116 billion in 2009.
So Mulally gets to buy each of his almost 5 million shares at the 2009 price, and then sell them at today’s price. He benefits just as the shareholders benefit.
And this may really frost some Ford workers, who can argue that their needs are as important as those of Ford shareholders. According to an Associated Press story, Ford workers last year cited Mulally’s high pay package when voting against contract changes.
Chances are they may do it again, and again. According to news stories, Mulally was awarded an additional 1.2 million stock options, to vest in three years.
Let’s hope Mulally can find a way to square his largess with workers. Executive compensation is a sore subject for many employees, but it is especially so for autoworkers, who in many ways represent America’s comeback from the Great Recession. If Mulally wants to foster Ford’s image among consumers as the come-back kid, he may consider sharing some of his millions with those who actually know how to build his product.
