Intel freezes executive compensation, re-prices employee stock options

Intel Corp., the world's largest chipmaker, froze salaries for top executives and overhauled its option pricing for employees as the economic slump weighs on chip orders.

Consequently, shares of Intel were up 3.7 per cent after the company said it would keep the cash portion of executive compensation flat because of the severe economic downturn, according to a filing with the US Securities and Exchange Commission. The freeze does not affect non-cash compensation such as stock-option grants, however.

Intel's share price has dropped by a third in the past year. The company joins other technology providers in updating compensation policies as consumers and companies curb spending for everything from computers to mobile phones. At least 97 companies have proposed or completed option-exchange plans, and Intel's competitor Texas Instruments Inc. put a freeze on salaries for all employees.

The Santa Clara, California-based company also aims to offer other employees a chance to exchange "underwater" stock options for grants with a lower strike price. The program would not apply to top executives.

Options are deemed underwater when the value of a company's stock falls below the strike or exercise price. Employees can only realize a profit when their company's stock trades above their exercise price.

Companies in the high-tech sector often use options as a means to attract new employees or to maintain and motivate current ones. Yet a sharp decline in Intel stock since the end of 2007 means that many existing grants are effectively worthless, at least in the near term.

Employees who accept an exchange would receive a lower number of options equal to the "fair" value of the original grant. Intel is seeking shareholder approval to issue as many as 235 million new shares for the option-exchange program.

The company also said the value of Otellini's compensation rose 10 per cent to $12.7 million last year. His base salary totalled $1 million and he earned $3.9 million in cash under the company's annual and semi-annual incentive plans. The rest of his compensation, $7.2 million, came in the form of stock or option grants.