Intel to freeze pay, help employees with 'underwater' stock options

Intel plans to freeze salaries and exchange employee stock options for new ones with a lower exercise price, the company said in a SEC filing Monday.

In a proxy statement filed with the Security & Exchange Commission in advance of its May 20 annual meeting, the Santa Clara semiconductor giant said its actions were a necessary response to the weak economy.

"In 2008, net revenue declined slightly and net income declined 24 percent compared to 2007," the company said in its filing. "Given Intel's financial performance in 2008 as well as uncertainty in the global economic environment, the committee elected to keep base salaries and annual incentive cash baselines flat for all listed officers in 2009."

Intel's shares were up 3.8 percent to $15.21 in late-afternoon trading. That's down from its 52-week high of $25.29 a share.
According to its proxy statement, Intel President and CEO Paul Otellini made $12.7 million in salary and other compensation in 2008.

The economy has pushed down the value of employee stock options. At the end of 2008, the company said, 99 percent of its stock option were "under water," meaning the exercise price exceeded the market price. Those options are held by 87 percent of Intel's 83,900 employees.

"We face a rapidly changing marketplace in which demand is shifting among mobile, desktop and server microprocessors, and the prices and margins of our products have been under pressure," the company said.

If approved by share holders, employees will be able to exchange options at a more favorable price. The potential impact, it said, could be the reduction of 285 million stock-option shares.

The move is needed, Intel said, to keep employees engaged. "The current situation provides a considerable challenge to maintaining employee motivation, as well as creating a serious threat to retention."