Exercise 7. Translate the text in writing.

The Bottom Line on Options

Who are the winners in the battle over expensing? Just look in the corner office by Mark Gimein

More than one war has been fought over the fine points of religious dogma, and the narrowest differences in ideology have caused some of the bloodiest conflicts. These are the wars that sweep away everything in their path while the participants forget the reason they started fighting in the first place.

So it is — minus the blood — with the Great Options Battle. You will recall how it started, with Warren Buffett leading the charge on one side, Intel Corp.'s Andy Grove and Cisco Systems Inc.'s John Chambers waving their pennants on the other, all battling over accounting rules.

Lifted on a tide of anger over ever-more-outsize executive pay packages, the corporate-governance party prevailed. Now the new rules that require U.S. companies to count stock options as an expense are in effect for nearly everyone. But it turns out CEOs might well lose little or nothing. If anyone is taking a hit, it is the professionals, engineers; and managers who hoped they too could cash in on the options boom.

Stock options became popular in the 1990s as a tool that was supposed to " align the interests" of shareholders and management — in other words, reward CEOs for concentrating on raising their stock price. Silicon Valley, of course, seized on options as a way of attracting top engineering talent.

Finally, at the height of the market boom, big companies that wanted to project an image of rapid growth and general with-it-ness started giving out options to thousands of their employees. Aetna, when it shed most of its old insurance businesses, instituted an option plan for all employees. So did Time Warner when it merged with America On-line.

The total number of U.S. employees who got stock options grew to roughly 10 million at the height of the options boom in 2002, according to a study by the National Center for Employee Ownership (NCEO), a think tank in Oakland, Calif. Now the center's director, Corey Rosen, estimates the number is down to 7

million and shrinking.

Before the new accounting rules kicked in, options were invisible on the corporate income statement. No matter how many a company handed out, they could tell investors that they cost

nothing. Not anymore.

Google, hugely generous with employee options through last year, when almost $420 milion worth were handed out, this year has switched to giving out restricted stock, which vests over time. But Google's expansive stock program is the exception.

Aetna, whose employees profited handsomely as its shares ran up in the five years or so that it gave options, last year replaced them for non-managers with $500 bonus checks.

Business Week

UNIT 13 Consolidation

• Textl

Will CEOs Find Their Inner Choirboy?

YOU can understand why people are furious over CEO pay: Just read this issue's cover story. But even the noblest reformers generally fail to understand that if you change the way CEOs are paid, you change the way they manage their companies, with huge implications for investors. It happened ten years ago, influencing management in unexpected ways right up to the present, and it's about to happen again, with results that will likely be just as significant but radically different.

In 1992, after the last major bout of rage over CEO pay, Congress changed the tax code so companies couldn't deduct executive salaries to the extent that they exceed $1 million. That'll show 'em! But of course the change didn't mean CEOs got paid less. It just meant they got paid differently. Responding to the new rules, boards eased up on higher salaries and instead ladled out vast new grants of stock options. Because of bizarre and indefensible accounting rules, paying the CEO with options never reduced reported profits but did reduce taxes when the options were exercised. The stock market was chugging upward, so the options looked as though they'd pay off, and they seemed to align a CEO's interests with shareholders', assuaging investor anger. What the reformers didn't focus on was that options motivate CEOs to do things investors may not w/ant at all. One of the most fundamental traits of an option is that it. is more valuable if the underlying stock is more volatile. Option holders love stocks that swing violently, because holders can exercise the option during one of the spikes and make loads of money. Result. As CEOs were paid increasingly in options, they were nudged to love risk more than they would otherwise — and more than ordinary shareholders might want.

Another wedge between option holders and shareholders is that shareholders can be rewarded in two ways, through price appreciation and dividends, but option holders make money only through price appreciation. So CEOs who held a lot of options faced a powerful incentive to make sure their companies paid minimal or no dividends. Dividend payouts have fallen sharply since 1992 and today are at their lowest levels ever. Yet empirical evidence shows that companies faced with paying a stodgy old dividend every quarter have on the whole rewarded shareholders better than companies that don't pay dividends.

No one realized ten years ago that a rule intended to limit the cash pay of CEOs would turn them into risk-loving, dividend-despising cowboys. Now new rules may be about to turn them into just the opposite. Here's how.

Options have changed from beautiful to beastly. Recent accounting rules force companies to report their value, and Senators McCain and Levin are pushing a bill that would go much further in uglifying the reporting and tax requirements. Boards will respond to these changes, and in fact are already doing so by rewarding CEOs much more heavily with outright ownership of stock. An important difference between stock options and stock is that while volatility makes an option valuable, predictability makes a stock valuable. Investors love to see earnings march steadily, reliably upward every quarter. Far from being motivated to like big risks then, CEOs will increasingly be motivated to play it safe.

And remember, stockholders receive dividends while option holders don't. Even when a board gives a CEO restricted stock, a common practice, the restriction prevents sales for only a certain period. In the meantime the CEO still owns the stock and collects dividends from day one. That fact alone should start dividends flowing out of corporate treasuries in a much bigger way, but there's more. The double taxation of dividends is a legitimate argument against paying them: they really are a terribly inefficient way to reward shareholders. But President Bush is intent on eliminating dividend taxation, and while he may not get everything he wants, he may very well get something, maybe a 50% exclusion. Combine that rule change with CEOs newly positioned to receive more dividends, and don't be surprised if many CEOs decide it's profoundly wise to make regular payments to shareholders.

The newly motivated CEO is a big change from the old one: less cowboy, more choirboy. Will that be a good thing?

After investors' trauma of the past few years, it's tempting to think so. But I wouldn't bet on it. What I know for sure is mat just like last time, the rule changers have little idea what kind of new business environment they're creating.

Fortune

Exercise 1. Act as an interpreter.

A. Executives can no longer think of stock options as a free ride. The exodus of investors from equity markets and the accounting scandals that toppled Enron and WorldCom have made scores of blue-chip companies announce plans to account explicitly for the cost of the options they use to compensate executives and other employees. Rather than burying options as a footnote in financial reports, more and more companies will report these payouts in the same way they do office rents, salaries and other business expenses.

B. Можно рассмотреть ситуацию, когда главное исполнительное лицо располагает значительным числом опционов, фактически не имеющих ценности, потому что цена на акции снизилась значительно ниже цены исполнения опциона, то есть цены, при которой опцион может быть использован. Если вероятность существенного повышения цены на акции компании невелика, то главный исполнительный директор вполне может подумать об осуществлении рискованных приобретениях других компаний или о новых проектах, которые могли бы повысить ожидаемую неустойчивость курса акций и восстановить ценность опциона.

При всех подходах к оценке стоимости опционов вывод один — неустойчивость курса акций, лежащих в основе данных опционов, способствует увеличению стоимости опционов, поскольку по мере усиления колебаний цены на акции, все больше вероятность того, что в какой-то момент в течение срока действия опциона она превысит цену исполнения опциона (strike price). При этом риск, которому подвергается главное исполнительное лицо компании, весьма ограничен. Прежде всего, опционы не представляли никакой ценности, и как бы низко ни падала цена на акции компании, они никак не могут обесцениться еще больше. При усилении неустойчивости курса акций руководитель компании, ничего не теряя, может выиграть все.

A. That is true but such greater volatility increases the potential magnitude of downward share price movements and may therefore introduce a degree of risk that many investors would neither anticipate nor welcome.

B. Чтобы не допустить возникновения таких обстоятельств, наилучшим выходом, вероятно, будет сокращение доли опционов на покупку акций в вознаграждении руководителя компании.

• Text 2

How to Pay

Michael Jensen still thinks he has the answer

WANT somebody to blame for those disgraced bosses, with their ill-gotten share-option fortunes? Look no further than Harvard Business School, and in particular, at a (now) emeritus professor, Michael Jensen. No academic is more closely linked to the cause of tying a boss's pay to his firm's shares than Mr. Jensen (who now works mostly for the Monitor Group, a consultancy). But don't send a lynch mob to the banks of the Charles River. It is not Mr. Jensen's ideas that are rotten, but how they have been implemented — and he has things to say about how to fix the present mess that are well worth hearing.

Although he has influenced many aspects of financial economics, Mr. Jensen is best known for work on " agency" problems — those that arise when somebody (the " principal") hires somebody else (an " agent"). Public firms, with their separation of ownership (shareholders) and control (bosses), have been beset by agency problems for as long as they have existed. Mr. Jensen first explored how companies might remedy these problems in a paper written with William Meckling, then dean of Rochester University's graduate management school. This was published in the mid-1970s against a backdrop of depressed share prices and lacklustre corporate performance.

Managers manage in their self-interest, the authors said, a claim that, though often deeply resented by managers, is basically true enough. A rational manager with no investment in his firm would have little incentive to maximise its value, and every incentive to use it for his own ends. The smaller the ownership stake a manager has, the more likely he is to channel corporate resources in directions that give him value (perks, empire-building, and so on), and the more effort shareholders have to make to monitor the manager's behaviour to stop him feathering his nest at their expense. Taken to its extreme, a boss without shares might build a comfortable but profitless empire that squandered excess cashflow on shareholder-value-destroying acquisitions. This turned out to be a fairly good description of conglomerates, which were common at the time,

What, then, was to be done? Messrs Jensen's and Meckling's implicit answer was to make the managers into owners, by giving them equity. Later, Mr. Jensen expanded the argument, first by arguing for higher levels of executive compensation and a stronger tie to share performance, and then, in a logical progression, arguing that the best way out of America's corporate-structural rut was through leveraged buyouts (LBOs).

By taking a firm private, Mr. Jensen saw a way for a boss's incentives to be tightly tied to shareholder returns, for financial discipline to be supplied by big debts, and for monitoring to be done by private-equity firms backing the buyouts. The chance of a hostile lbo would encourage existing managers to improve returns or risk losing their jobs. Mr. Jensen's 1989 essay on the subject, in the Harvard Business Review, was entitled " The Eclipse of the Public Corporation." Thus inspired, to a degree, firms took on more discipline-encouraging debt. Managers were paid increasingly with ever-larger grants of share options (often justified by a citation of Mr. Jensen's work). But then something happened that Mr. Jensen had never expected: the stockmarket bubble.

When Mr. Jensen first pondered agency issues, the big problem was under-utilisation of company assets, and their consequent undervaluation. In the 1990S, the most salient corporate-finance problem was overvaluation — an eventuality seemingly so unlikely that few economists had ever given it much thought.

Mr. Jensen now thinks that the way in which executive pay was typically tied to share performance through options meant that, in the bubble, the carrots became what he calls " managerial heroin, " encouraging a focus on short-term highs with destructive long-term consequences. Once a firm's shares became overvalued, it was in managers' interests to keep them that way, or to encourage even more overvaluation, in the hope of cashing out before the bubble burst. Doing this not only meant being less than honest with shareholders, or being creatively optimistic with corporate accounts. It also encouraged behaviour that actually reduced the value of some firms to their shareholders-such as making an acquisition or spending a fortune on an Internet venture simply to satisfy the whims of an irrational market.

One answer to this problem — the wrong answer, Mr. Jensen says — is to increase monitoring by putting many new demands on corporate boards and on how contracts with managers are structured, which is how he sees the recently passed Sarbanes-Oxley act. That could increase costs sharply, prompting many smaller firms to go private, Mr. Jensen believes. (Call it the partial eclipse of the public corporation.)

A better answer, says Mr. Jensen, is to retain the link between pay and share price, but to do it in a way that removes the incentive for managers to exploit and encourage short-term overvaluation. Ideally, bosses should not be able to bank most of the rewards for their performance until it has been proved genuine. One method, suddenly all the rage, is to grant managers " restricted stock" that cannot be sold for many years. Mr. Jensen is not convinced: restricted stock is more expensive to provide than, and does not penalise underperformance as much as, share options, which may become worthless if a firm's share price falls. Far better, says Mr. Jensen, to grant a new sort of customised share option, which is profitable only if the share price not only appreciates, but does so by more than a firm's cost of capital: and which can be exercised only after a long period.

Better-designed share options, not fewer options, is hardly a populist message in today's boss-bashing era. But Mr. Jensen may be right that it is what corporate America needs.

The Economist

Exercise 1. Translate the following sentences paying attention to the structure of the sentence.

1.With the talent shortage causing salaries to shoot into the stratosphere in the late 90s, some companies are exploiting the current downturn to bring pay levels back to prior levels.

2.With the tech collapse causing a drop in demand for DiamondCluster's services, the company asked many of its 1, 400 employees to give back some of the gains; indeed, workers making more than $50, 000 were required to take as much as a 20% pay cut.

3.After a decade of doling out bonuses, stock options, and other perks like candy during the go-go " 90s, a generation of managers is wrestling with an issue many have never faced before: how to run their businesses and maintain worker morale at a time when many companies are facing fierce pressure to rein in costs.

4.With the labor shortages of the late'90s still fresh in their minds, many corporate leaders are taking a new tack in the first recession of the New Economy: rather than opting for the sweeping layoffs of the past, which often require managers to hastily rehire when the economy recovers, companies are trying to limit layoffs by freezing or cutting pay across the workforce.

5. Many recruiters and management experts argue that companies would be better off biting the bullet by laying off their least- productive workers, while being careful to lavish enough on truly valued employees to ensure they stick around.

Exercise 2. Read and translate the text orally without using a dictionary.

Wallowing in Wages

April brings pay season, a time of rituals in the American business calendar. First comes news that chief executives have paid themselves even wilder sums of money than before. Next, there is outrage. Lastly comes the familiar sound of snouts returning to the trough for another feed.

Executive pay has risen to such heights that the bad times look rather like the good times used to: the median total compensation in the Mercer survey was still $2.16m. Nor has pay fallen by nearly as much as profits have done. The total compensation of chief executives is down by 2.9% on a year ago, but after-tax profits fell by nearly 50% last year among the companies included in the S& P 500. Some components of bosses' pay, such as basic salaries, actually rose healthily on the back of this dreadful performance. Most important of all, says Nell Minow of The Corporate Library, a watchdog website, top executives earn most of their money these days from large grants of stock options, which are typically exercisable over ten years. Shareholders should therefore pay the most attention to how pay changes over the medium term.

Here, the picture is more mixed. The four punished and bonusless AOL-Time Warner executives, for example, each nonetheless collected stock options valued at around $40m per head. Pay consultants also admit to inflation in parts of the pay package not captured by their surveys, such as perks.

Some of the financial services that American companies offer their top chaps would put regular banks out of business. Pension arrangements, which the consultants' surveys also fail to capture, are suffering rampant inflation as well. At almost all big American companies, executives belong to pension plans other than the basic company scheme. At first, says Graef Crystal, a former pay consultant, these plans treated executives and regular employees even-handedly. Gradually, however, the ordinary company pension plan and the executive plan have parted ways.

On the whole, Americans suffer neither envy nor egalitarian yearnings when gazing at the fortunes of their business leaders. But they do like to think that their market-based system works fairly. The collapse of Enron, Andersen and other once-prestigious companies has rocked that faith. Companies and their shareholders ought to be trying their best at the moment to restore confidence. Besides, the boss's pay is no small amount of shareholders' money, especially in these lean times. On Mr. Crystal's calculation, given current trends, by 2021 there will emerge a big American company where the boss is paid more than the firm's entire annual sales. If that is market forces эх work, then market forces had better be ignored.

The Economist

Exercise 3. Translate the text orally.

Опционы эмитента

Опцион эмитента — эмиссионная ценная бумага, удостоверяющая право ее владельца на покупку в предусмотренный срок определенного в опционе количества акций эмитента по определенной цене

Использование опционов для стимулирования эффективной работы менеджмента компании стало широко распространенным явлением на Западе. Суть метода проста: работник компании (чаще всего менеджер какого-либо звена) часть своего жалованья получает опционом " колл" на акции своей компании. Это означает, что он приобретает право в течение определённого срока (как правило, это несколько лет) купить акции компании по заранее оговорённой в опционе цене — обычно она близка к рыночной цене этих акций на момент выдачи опциона. Таким образом, если акции в течение означенного срока вырастут в цене, скажем, со 100 до 200 рублей, то работник получит неплохую прибавку к зарплате: он сможет тогда реализовать свой опцион, то есть купить акции по цене 100 рублей — и тут же продать их на рынке по 200.

Считается, что опционы — это наилучший из известных механизмов оплаты труда, который ориентирует менеджеров в сторону обеспечения и долгосрочной успешности своих компаний, и текущего достатка их работников и акционеров. В то же время существует немало и критиков опционных выплат. Часто полагают, что, привязывая оплату труда к курсу акций, топ-менеджеры тем самым поощряют ответственных работников сосредотачиваться на сиюминутных мероприятиях. В результате они тратят массу времени на то, чтобы результаты следующего квартала совпали или даже превысили ожидания рынка, — и при этом теряют чувство перспективы, необходимое для долгосрочного развития своей компании.

Чтобы метод оплаты труда мотивировал менеджеров уделять внимание и долгосрочным целям, его следует увязать с каким-нибудь измерением эффективности работы, которое нацелено в будущее, а не в настоящее (и даже прошлое). Традиционное измерение через калькуляцию прибыли здесь не проходит — ведь прибыль отображает прошлое, а не будущее. В то же время курс акций является мерой, которая направлена в будущее, — ибо он прогнозирует, как сегодняшние акции повлияют на будущие прибыли компании. Прогнозы, естественно, никогда не бывают точными, но так как инвесторы вложили свои собственные деньги, то они находятся под тяжким прессом желания правильно прочесть будущее. Это и делает биржевой рынок относительно лучшим предсказателем эффективности работы.

Но как быть исполнительному директору, чья отличная долгосрочная стратегия пока ещё полностью рынком не оценена? Или, что ещё хуже, что делать с менеджером, который может одурачить рынок, выкачав сиюминутную прибыль и запрятав серьёзные проблемы компании поглубже? Лучшие прогнозы могли бы дать сами инвесторы, однако и они не всеведущи. Опционы на покупку акций компании предоставляют эффективные средства для обращения к этим рискам — а именно медленное вкладывание капитала. Практика такова, что в большинстве случаев исполнительные директора могут исполнять свои опционы лишь поэтапно и через длительный период времени, например, не более 25 % в год на протяжении четырёх лет. Такая задержка необходима для того, чтобы вознаграждать тех менеджеров, которые взяли акции с долгосрочными выплатами, и налагать жёсткие штрафные санкции на тех, кому не удалось справиться с главными проблемами ведения бизнеса. Сергей Егшиянц http: stockportal.rи/

Exercise 4. Translate the following text in writing. Use the active vocabulary of the units and the words listed below.

to motivate, motivation to work for peanuts headhunting

corporate system of compensation fixed salaries short-term incentives deferred payouts efficiency

«Все выше, и выше, и выше» Как мотивировать топ-менеджмент Мотивация относится к вечным проблемам любой компании. Человек «не управляется копейкой», но и бесплатно работать не будет. И чем выше уровень сотрудника, тем сложнее система мотивации Корпоративная система вознаграждения — результат соглашения между руководством компании и наемным менеджером. Руководителям вновь и вновь приходится искать ответ на вопрос: «Как привлечь и мотивировать топ-менеджера на эффективную работу?»

Классическая схема вознаграждения менеджера включает фиксированную часть (зарплату — 50%), краткосрочное премирование (например, годовые бонусы -25%), долгосрочные поощрительные выплаты (опционы на акции, отсроченные денежные выплаты — 20%), остальное — дополнительные льготы (например, автомобиль, страховка). В российских компаниях, не имеющих долгосрочных программ поощрения, доля базовой зарплаты в доходе топ-менеджеров составляет в среднем 80%, а годовых бонусов — около 20%.

Что касается зарплаты, то, по мнению специалистов, ее мотивационный КПД самый низкий. «Зарплата — не мотиватор, а фактор «гигиены», позволяющий менеджеру думать о самореализации. Как показали исследования американских психологов, повышение зарплаты стимулирует мотивацию сотрудника в течение одного - пяти месяцев, после чего мотивация снижается до прежнего уровня. Однако, по мнению Андрея Младенцева, гендиректора компании «Нижфарм», совсем не учитывать зарплату в качестве фактора мотивации тоже не стоит. «Текущая зарплата — тоже кусочек прибыли, а следовательно, собственности, — говорит Младенцев. — Весь вопрос в том, какой именно способ мотивации предпочитает тот или иной топ-менеджер и насколько его предпочтения встретят понимание и удовлетворение со стороны собственника».

Чтобы увеличить мотивационный КПД зарплаты, компании устанавливают «зарплатные вилки» для каждой должности. В западных компаниях уровень зарплаты сотрудника (минимальный, средний иди максимальный) устанавливается в зависимости от оценки работы сотрудника по результатам деятельности компании, процедура, называемая «performance appraisal». «Ежегодная оценка проходит в рамках собеседования с менеджером, итогом которого должна стать согласованная сторонами оценка результатов работы по пятибалльной шкале, — поясняет Татьяна Даниленко, директор по персоналу международной компании «Главербель Восток» (производство стекла). — Далее, на основании стандартной формулы и полученной оценки определяется сумма годового вознаграждения руководителя. Формула включает в себя относительный показатель прибыли компании, оценку результата работы, процент от годового дохода менеджера. Это и есть " плавающая мотивация"». Еще одним результатом «preformance appraisal» становится индивидуальный план развития карьеры: какие тренинги, программы обучения необходимы менеджеру для того, чтобы выполнить поставленные задачи. Повышение стоимости труда сотрудника и его карьерное продвижение в западной компании в немалой степени связано с приобретением определенных знаний и навыков.

Пролетая над Таити

Сергей Мартьянов, партнер компании по подбору персонала «РосЭксперт», считает, что «при достижении результата высокооплачиваемый менеджер должен «награждаться» высокой степенью ответственности и полномочий, возможностью открывать новые проекты или направления в бизнесе». Если компания не в силах предложить менеджеру другую задачу, предполагающую расширение сферы ответственности, мотивация его к работе в рамках данной компании падает. Поэтому одним из серьезных методов мотивации является ротация. Например, менеджеры TNT Express могут участвовать в глобальной корпоративной программе Multy Truck. Цель этой программы — обнаружить внутри TNT сотрудников, способных решать проблемы компании в разных странах. Процедура отбора происходит в режиме on-line. Для прошедшего конкурс кандидата предыдущая работа заканчивается, и после специального тренинга его отправляют, например, финансовым менеджером TNT на Таити.

Философия бонуса

В больших корпорациях годовой бонус привязывают к трем показателям: общей динамике акций компании, успехам подразделения, контролируемого топ-менеджером, и его личным результатам. По каждому из показателей определяются весовые коэффициенты. «Если компании важнее мотивировать командную работу, в формуле увеличивают вес достижений компании, — поясняет Ирина Савицкая, директор службы по работе с персоналом «Cargill Россия». — Философия бонуса может быть пересмотрена, когда компания переходит из одной фазы развития в другую, либо когда меняется стратегия компании».

Специалисты ВРО Executive Search & Consulting отмечают «сезонность» переходов сотрудников из одной компании в другую, связанную с периодом выплаты бонусов топ-менеджерам. «В тех секторах, где размер бонуса приближается к годовой зарплате или превышает ее (например, в инвестиционно-банковской сфере), компании часто намеренно оттягивают выплаты, — рассказывает Юлия Бевзенко. — Менеджер не уходит, пока не получит " того, что ему причитается"». Очевидно, что такой способ удержания управленца в компании не приносит результатов в долгосрочной перспективе: если решение о переходе принято, человек уйдет. Удержать топ-менеджера в компании надолго позволяют «длинные» системы мотивации: опционы на акции, стратегические (отложенные) бонусы, корпоративные пенсионные планы.

Т. Андропова

Компания

CHAPTER 3. THE NUMBERS GAME.

CREATIVE ACCOUNTING. INSOLVENCY AND BANKRUPTCY

UNIT 14

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FUZZY NUMBERS

If you thought accounting reforms did the job, think again. Corporate earnings can be as distorted and confusing as ever

by David Henry

CONSTRUCTION GIANT and military contractor Halliburton Co. did something mind-boggling last year: The Texas company reported earnings of $339 million, even though it spent $775 million more than it took in from customers. There was nothing illegal here. Halliburton made big outlays in 2003 on contracts with.the U.S. Army for work in Iraq — contracts for which it expected to be paid later. Still, it counted some of these expected revenues immediately because they related to work done last year. Investors didn't get the full picture until six weeks later, when the company filed its complete annual report with the U.S. Securities & Exchange Commission. Halliburton says it followed generally accepted accounting principles (GAAP). Maybe so, but after three years of reforms in the wake of corporate scandals, the Halliburton case illustrates that earnings remain as susceptible to manipulation as ever. Why? Because U.S. accounting rules give companies wide discretion in using estimates to calculate their earnings. These adjustments are supposed to give shareholders a more accurate picture of what's happening in a business at a given