NEWSWIRE - November 15, 1999
Topic: Executive Compensation and Stock Splits
Source: "Decompensation: Executives Ordered to Return
Millions," by William M. Bulkeley, Wall Street Journal,
Wednesday, November 10, 1999, page A1.
Synopsis of Article:
A recent court ruling required three top executives for Computer
Associates to return 9.5 million shares of stock awarded under
an incentive grant. The court ruling was filed on behalf of
shareholders who believed that the award was far too generous
given the recent performance of the firm. However, the decision
was not based on the principle of fair pay for performance,
it resulted from a technicality in the award itself. Shareholders
had agreed to provide up to six million shares for this particular
incentive plan. Since that agreement in 1995, the stock had
split 3-for-2 on two occasions. Hence, each original share
became 2.25 new shares. The board of directors adjusted the
executives' stock awards in this manner, but the court sided
with investors who argued that the plan specified the maximum
number of shares that could be awarded without any reference
to split adjustment.
Questions:
- What is a stock split? Computer Associates stock split
3-for-2 in July of 1996 and again in November of 1997. A
single share was worth $65.50 in November of 1995. The recent
price (November 1999) per share is 45 7/8. What is the capital
gain for a shareholder during this period?
- What's the purpose of a stock split? How do markets typically
react to such events?
- Why were shareholders particularly concerned by the split
adjusted awards provided to investors?
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