Marconi re-thinks options plan

Marconi chiefs have decided that they will not be slashing the price of their now largely worthless share option packages.

The controversial move had attracted widespread criticism, especially from shareholders who have seen the value of Marconi shares plunge over the past 16 months.

The company continues to believe that the proposed amendments are essential if it is to retain key personnel and realise its full potential

Marconi

Share options involve employees of a firm being offered the chance to buy its shares at its current price at some time in the future - three or five years for example.

The idea is that they act as an incentive for managers and executives to help a company perform well and increase its share price.

If the share price has risen, the executives can buy the shares at the original price and then sell them at whatever their current price is, so pocketing the difference.

Shareholder anger

The problem for Marconi is that their share price has fallen so far, that their options packages are now worthless because staff would have to pay more to buy the shares at their past, higher, levels than they could sell them at today.

Because Marconi says that share options are a good way to retain staff, it had proposed slashing the price at which its shares could be bought by those in the scheme.

Shareholders were angry because that would still provide directors with a pay-out despite the fall in the share price.

Although directors have decided not to have their share options re-priced, Marconi is sticking to plans for repricing options given to staff below board level.

"The company continues to believe that the proposed amendments are essential if it is to retain key personnel and realise its full potential," a statement on Friday said.

Incentive scheme

The awarding of share options is particularly common practice among start-ups, which lack the cash to pay high basic salaries.

Marconi shares have plummeted from 719p at the start of the year to below 240p earlier this week, rendering the 1603p price at which staff options can be exercised a distant dream.

The options thus offer the firm's 34,000 eligible staff little reason to stay with the company, Marconi bosses have warned.

Under the new plan, to be put before shareholders at the company's annual meeting next month, Marconi will offer staff a minimum exercise price of £4, with the number of options cut in proportion.

In the City, Marconi shares stood 5p up at 256p in morning trade on Friday.