The recent news that Intel would be freezing bonuses, laying off staff, and reducing employee compensation was confirmed by an Intel employee. This decision was taken during the Covid-19 Lockdown, a period of severe financial distress for the corporation. Despite Intel’s record-low losses, the company continued to invest heavily in future architecture.
Profit/Loss Balance
Obviously, pay cuts alone wouldn’t have been enough, so they had to take additional steps. Intel reportedly took action by limiting the stock options granted to CEO Patrick Gelsinger upon his 2021 appointment, according to documents filed with the Securities and Exchange Commission (SEC).
Mr. Gelsinger, speaking on the sidelines of the World Economic Forum in Davos, gave a detailed account of the problems the company has been having since he took control. The CEO stepped forward to explain that despite the company’s terrible Q4 Report in Loss, it could not halt the multi-billion dollar initiatives that were bringing in cutting-edge technology. He compared the balance between losses and profits to a race and brake pedal.
In another public appearance, Intel CEO Patrick Gelsinger admitted that the company had lost its manufacturing leadership while he was in charge. But he was eager to maintain his investment in cutting-edge technology so that the firm could be the first to market with a ground-breaking new product. In the same way that all other executives do, Mr. Patrick had tied his performance to the company’s stock price. He predicted that the stock would rise in value along with the company if its financial situation improved.
The company extended a warm welcome to Mr.Patrick Gelsinger and presented him with a great package upon his arrival. This was broken down as follows: a base pay of $1.1 million, an annual performance incentive of 275% of his base salary, a hiring bonus of $1.75 million, and six grants of equity (shares). These include PSUs, RSUs, PSUs based on growth, PSUs based on outperformance, PSUs based on stock performance, and PSUs based on stock performance with options (subject to stock purchases made by the executive).
What Changes Were Made?
Intel (quite covertly) modified three of the six stock grants at the end of November of last year. These pacts cover the performance Options, growth PSUs, and outperformance PSUs (totaling $40 million). Because of the adjustments, the time frame during which these share awards are valid has been lengthened, and the minimum share price performance has been raised.
The ‘Interim Vesting date‘ for Mr. Gelsinger’s two PSUs was three years (36 months) after the PSUs were granted, meaning that he would have earned half of the shares awarded in the agreement by that time. When an employee is granted restricted stock units, this is known as the grant date, and once the shares have vested, they can be sold. Units were awarded to Mr. Gelsinger upon his hire, and if Intel’s share price had increased by 200% over $49.65 and held at that level for at least 30 days, then 50% of the stock units would have vested three years later. The second PSU is subject to the following terms and conditions:
The second PSU was also subject to the same Interim Date, but this provision will no longer be in place as of the modifications that went into effect on November 18, 2022. Therefore, even if Intel’s share price increases by 200% and remains at such levels for 30 days (as required by the first PSU), Mr. Gelsigner will not be entitled to receive half of his stock units. Instead, he must wait until February 15, 2025, which is five years after his joining date. Patrick must assure the adjustments he’s making will provide long-term value for Intel, because the stock price must remain at the aforementioned levels for 90 consecutive trading days instead of 30. However, the share price only needs to rise by 30% for the second PSU depicted above; this is a crucial detail, as we’ll see shortly.
Option vesting based on performance criteria and service time is the subject of Intel’s third revised agreement with its top executive. In contrast to the PSUs, the original deal promised Mr. Gelisnger a cool 2,083,638 shares of Intel common stock, which would vest in four equal payments on each consecutive anniversary (subject to the performance criteria below) of his joining.
The performance requirements of the Option Agreement were less stringent, calling for only a 30% increase in share price ($64.54) that was maintained for thirty consecutive days before Mr. Gelsinger’s fifth anniversary of joining the company. If the predicted appreciation does not materialize, however, the Option will expire. The 30% increase has been increased to 50%, and the requirement that the level be maintained for 90 consecutive trading days has been increased from 30 to bring this agreement in line with the other two.
The Intel CEO seems to be betting the company on a turnaround by the end of the decade.
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