Stock option millionaires
Formula: Executives exercise stock options to boost pay by millions.
Martek Biosciences CEO Henry "Pete" Linsert Jr. netted $11.8 million after exercising stock options last year -- long before the share price plummeted in April. (Sun photo by Kim Hairston / May 26, 2004)
Linsert exercised a half-million company stock options for a theoretical payout of $28.5 million, making him among the best-paid Maryland executives in 2004.
Executives in Maryland cashed in options last year, some of them because the options were nearing expiration. But no one came close to Linsert's multimillion-dollar "value realized" amount -- the difference between the price he actually paid and the price the shares could sell for the day he bought them.
Behind Linsert was Marriott International Inc. CEO J.W. Marriott Jr. He traded in about 550,000 options for actual shares with a realized value of $12.18 million. Behind him, Raymond A. Mason, CEO of Legg Mason Inc., exercised 872,300 options with a realized value of about $12.16 million.
For Linsert, exercising the options drove his paper worth up millions for a period last year.
Over the course of two days -- Jan. 15 and 16, 2004 -- Linsert turned 545,000 options into shares, buying each at prices ranging from $6.25 to $32.88 and spending a total of $7.7 million. He also sold 296,700 of his newly acquired shares for about $65.80 apiece, for a two-day total payout of $19.5 million.
Subtracting the two figures netted him $11.8 million -- 27 times his salary for fiscal year 2004, which ended Oct. 31 for Martek. Martek spokeswoman Beth Schimel Parker said Linsert used the $11.8 million to pay fees and taxes associated with the transaction.
Linsert declined to be interviewed for this article. Parker said he initiated the transaction to establish a tax base of $65.85 for the shares -- the price the stock was selling for on Jan. 16.
If Linsert had immediately sold all his new shares, he could have pocketed the $28.5 million, but he didn't. Instead, he held on to about half of them, which have since lost value as shareholders grew frustrated with the company's supply and demand issues.
Martek makes nutritional oils shown to enhance infant development. They're widely added to baby formula by manufacturers, who have also been hoarding the stuff, afraid Martek would run out of its supply. Because of that, revenue projections were off for the year, and the company adjusted them late last month, causing a 46 percent stock plunge April 28.
Shares that Linsert could have sold for $65.86 in January 2004 are now selling for $39.94 -- Martek shares' closing price on the Nasdaq stock market Friday. That's a 39 percent devaluation.
In a proxy statement filed in February, Martek announced it was looking to do away with its stock option incentive plan. Martek had been offering options for years to all sorts of employees, from directors to those at production level.
Linsert, who has been CEO since 1989, has been given about a million of them. When he chose to exercise his options 16 months ago -- at a time when the stock was at a peak -- the company issued a news release Jan. 14 outlining Linsert's intentions and attributing the transaction to "personal tax and financial planning purposes."