Northrop Rewarded Chief in Same Year It Reprimanded Him
The Northrop board last year substantially sweetened a 1.2-million-share stock option held by company Chairman Thomas V. Jones, the same year that the board voted to reprimand him for controversial foreign payments the company made in South Korea, according to the firm’s recent proxy statement.
Under a long-term incentive plan, Jones had held options on 1.2 million shares of Northrop stock at an exercise price of $45.88 per share. But the board last year cut the exercise price to $29.88.
The reduction effectively increased the value of the options by $19.2 million, if the stock should rebound to past prices. Under the new stock option arrangement, Jones could acquire up to 1.2 million shares for $29.88 each and then sell the securities at the market price, reaping a profit on the price difference.
Northrop stock closed Thursday at $25 per share, below even the revised option exercise price. Northrop shares peaked at $52.625 in 1987.
The options may be exercised up to 10 years after they were granted, a duration that could permit Northrop shares to return to past levels.
The board granted the options in early 1988. It is not known when in 1988 the reprimand occurred, but it was first disclosed by The Times in September and officially acknowledged by Northrop in the proxy statement last month.
At Northrop’s annual meeting several weeks ago, Jones said: “The purpose of stock options is not to reward past performance. They don’t. Their purpose is to provide an incentive for future performance.”
Jones is scheduled to step down as chief executive at the end of this year, though he will remain as a non-employee board chairman. A company spokesman said Thursday: “The board did for Jones what it did for the entire management team.”
The same type of options for the rest of management amounted to 376,300 shares, he said. The spokesman added that the option was changed long before the board knew that Jones would be stepping down as chief executive.
