RE: Greed: Don't Bail Out the Enron Employees

From: Robert J. Bradbury (
Date: Tue Jan 22 2002 - 13:04:37 MST

With regard to Enron executive compensation, the NY Times has
an article:

Most of Lay's compensation was in stock options, most of which
I expect were probably underwater during 2001 (i.e. the exercise
price on the options was below the open market price on the stock).

It is a little known fact about stock options that when you exercise
them, you have to pay taxes on the difference between the exercise
price and the market price. If the differential is wide this can
lead to a very significant tax bill with no funds to pay for them
unless you sell the stock. If you sell the stock this of course
increases your tax bill, typically at short term capital gains rates.
If the stock price declines significantly after exercise, you can get
screwed by this (have to pay a tax bill but lack the resources to pay
for it).

Its a complex part of the tax code and given the probable run-up
of Enron stock (and Lay's other investments) in '99 and early '00,
followed by the rapid decline I could see him getting caught in
a squeeze big time.

One thing that is clearly true from looking at the chart is that
Kenneth Lay has once had several hundred million dollars worth
of stock options in Enron that are now essentially worthless.


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