Aside from the public criticism of stock option expensing by Intel’s Chairman of the Board Andrew Grove, the 2003 proxy statement included guidelines for an overall review of executive compensation and the bidding process for auditors. Additionally, the chipmaker is examining the possibility of placing more stringent reviews and conflict-of-interest requirements for Intel directors, which comes in tandem with a sharp rise in their base pay.
However, the overall theme of the Santa Clara, California-based company was an assault on the possibility the company would have to begin expensing its stock options. ” We are strongly opposed to the mandated use of expensing, which we believe is a deeply flawed method of accounting that will affect the accuracy and clarity of our financial reporting and that has the potential for causing real economic harm to Intel and our stockholders,” Grove said in a letter on the annual meeting.
This strong statement is in response to a newshareholder resolution, backed by the United Brotherhood of Carpenters and Joiners of America Pension Fund, urges Intel to begin expensing options and the impending Financial Accounting Standards Board (FASB) review of mandated stock option expensing.
Grove continues by saying that stock option abuses are not accounting issues, as proponents of options expensing have charged. Rather, abuse should be addressed by holding directors accountable for their decisions concerning executive compensation. A move that is evident in examination of the company’s proxy materials.
In addition to the aforementioned review of stock options, the proxy statement says the review will evaluate other compensation methods, including restricted stock, indexed options, and phantom stock, a kind of incentive scheme that awards management bonuses based on the increases in the market value of a company’s stock.
The stock option expensing issue may well have bled over to Intel’s 35-year relationship with its auditor Ernst & Young, who in February came out in favor of stock option expensing (See E&Y Reverses Course on Options Expensing ). New for 2003 would be an open pageant of the country’s four-largest accounting firms before the board of director’s audit committee. The committee was apparently prompted by the idea of rotating audit firms regularly to get more independent views of a company’s finances.
Auditing the Committee
The face of the audit committee may be different, as Intel announced necessary changes in relation to the independence of Audit Committee members as outlined in the Sarbanes-Oxley Act and finalized by the Securities and Exchange Commission (See SEC Finalizes Audit Committee Rules ). Currently e ight of Intel’s 11 board members already are independent, and all must stand for re-election every year.
Intel’s Proxy Statement can be found on the Internet at www.intel.com/intel/finance/proxy03.