Posted on: Monday, January 27, 2003
Market motivates paying of dividends
By Rachel Beck
Associated Press
NEW YORK — Executives might have a roundabout way to give themselves a big pay raise. And it could come under the guise of helping shareholders.
The prolonged slump in the stock market, as well as the proposed dividend tax cut, could spur companies to start issuing dividends, which investors like because of the guaranteed and possibly tax-free returns.
But there would be profits, too — millions of dollars a year in some cases — for top managers who own bundles of company stock.
There is only one condition: Executives have to keep their businesses healthy so they can afford to pay the promised dividends. As long as they do, the money is theirs.
"This could be an indirect form of compensation," said Patrick McGurn, director of corporate programs at Institutional Shareholder Services in Rockville, Md. "It could come at a time when there is pressure on companies to link pay to performance."
With Congress expected to pass at least a partial dividend tax cut, there has been talk in recent weeks about the anticipated push by cash-rich companies to start issuing dividends.
Topping the list of possibilities are technology companies such as Dell, eBay and Oracle, that have favored reinvesting their profits in the business. But after three years of stock market declines, they may be tempted to go the dividend route to please investors.
These companies happen to have a good portion of stock ownership concentrated among top managers and directors. If their companies start issuing dividends, they benefit greatly.
Just look at the $99 million that Microsoft chairman Bill Gates took away from his company's decision last week to pay its first dividend of 16 cents a share.
Microsoft CEO Steve Ballmer gets $37 million, and the other 27 executive officers and directors take in about $7 million in total, according to their stock holdings on the company's most recent proxy statement. Compare that with a Microsoft investor with 1,000 shares, who will now see $160 in dividend payments.
