Cendant Cuts CEO’s Stock Options, Stresses Earnings

Cendant Corp. has sent a strong signal to its chairman and chief executive to focus on delivering solid earnings rather than trying to keep the travel and real estate giant’s stock price propped up.

In renegotiating Henry Silverman’s employment contract for the next 10 years, Cendant said Wednesday that his right to annual stock option grants was terminated and replaced with an incentive bonus that is tied to the company’s pretax earnings.

Experts said Cendant’s action highlights changing attitudes about executive pay in corporate America.

Cendant refused to comment on the matter. However, a source familiar with the company’s decision said, “Companies are under a great deal of pressure when it comes to how CEOs are compensated.”

In the wake of scandals at Enron Corp. and WorldCom Inc., companies are battling to regain the trust of investors.

Silverman voluntarily forfeited his annual stock option grant for this year, the company said, cutting the value of his annual compensation (on paper, at least) to $15 million, compared with $36 million in 2001.

Of the amount he received in 2001, $3.1 million was salary, $4.7 million was in the form of a bonus, and most of the remainder came in the form of options for 6 million shares.

Silverman owns 8 million shares of Cendant and has options to buy 36.4 million more at an average exercise price of $13.

Cendant’s shares fell 9 cents to $14.70 on the New York Stock Exchange.

The announcement of Silverman’s new contract coincided with Cendant’s decision to begin expensing stock options in January.

The two moves amount to a public acknowledgment that stock option payments to its top executive were excessive, said Bill Coleman, senior vice president for compensation at Salary.com in Wellesley, Mass.

“They’re sending a clear message,” Coleman said.