Enron Employees Watch Their Options Devalue as Shares Fall
2001-10-25 18:00 (New York)

Enron Employees Watch Their Options Devalue as Shares Fall

     Houston, Oct. 25 (Bloomberg) -- Enron Corp. prided itself on
sharing the wealth with employees when the company was posting
record profits last year. Now, from the boardroom to the mailroom,
employees are sharing the pain.

     Enron, the largest energy trader, grants stock options to the
bulk of its 20,000 employees. Under Enron's standard compensation
package, stock options constitute 5 percent of most employees'
annual base salary, spokeswoman Karen Denne said.

     Employees held 46.8 million exercisable options as of the end
of 2000, all at average prices above the company's current share
price. The stock has dropped 80 percent this year.

     ``Virtually every option is under water right now,'' Denne
said.

     Enron's board sets the strike price for the options in
December or January. Employees can't cash the options in and make
a profit unless the stock is trading above the strike price. At
the end of 2000, Enron shares were trading at $83.13. In December,
the board set a strike price of about $80.

     Shares of Houston-based Enron fell 6 cents to $16.35 today.
They have lost 37 percent of their value so far this week.

     Enron said Monday that the Securities and Exchange Commission
was asking questions about partnerships run by Andrew Fastow, who
was ousted as Enron's chief financial officer yesterday. One
partnership cost the company $35 million, and Enron bought back 62
million shares from another at a cost of $1.2 billion.

     Enron named Jeff McMahon, head of its industrial markets
group, as CFO late yesterday.

                         Unvested Options

     Another 96.1 million options granted to Enron employees
hadn't vested as of the end of last year. About 15.4 million of
them, or 16 percent, were at prices ranging from $6.88 to $20 a
share. The rest vest at levels well above the current share price.

     Experts who have watched the devaluation of stock options in
other industries, such as technology and telecommunications, say
it becomes demoralizing for workers to watch share prices fall
below their options.

     ``It looks bad,'' said Mark Edwards, chairman of IQuantic
Buck, a Mellon Financial Corp. unit that provides compensation
consulting. ``Employees look at (the stock price) every day, and
it's a continued disincentive to them.''

     While Denne said Enron doesn't have any plans to reprice its
employees' options, the company did issue a one-time stock option
grant at $36.88 in August, when Ken Lay resumed his former role as
the company's chief executive. Lay, who had held the job for 15
years, turned the position over to Jeffrey Skilling in February.
Skilling quit in August, citing family reasons.

     The August grant, which was equivalent to 5 percent of
employees' base salary, didn't require a vesting period, but was
exercisable immediately. Enron's shares haven't closed above
$36.88 since Aug. 29.

--Margot Habiby in the Dallas newsroom (214) 954-9452, or
mhabiby@bloomberg.net, with reporting by Loren Steffy in Houston,
through the Princeton newsroom (609) 750-4500/alp/taw