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Lehman to pay employees more in stock

2/07/2008 - 21:46

By Jennifer Ablan and Dan Wilchins

NEW YORK (Reuters) - Lehman Brothers Holdings Inc is paying more of employees' compensation in stock this year, the company said in a memo sent to employees on Wednesday.

The company also granted employees an equity award on July 1, which signaled to some investors that the company was less likely to sell itself at a level below its current share price. Lehman shares rallied 6.7 percent to $22.36.

"This special off-cycle grant underscores our confidence in Lehman Brothers' future," the memo said.

But some investors are skeptical that the share grant is good news. Paying more stock will not necessarily help the company retain employees, given the poor performance of shares recently, one portfolio manager said.

Walter Todd, portfolio manager at Greenwood Capital Associates and a former Lehman Brothers employee, said, "If I were working there now, I'd want cold hard cash."

About 30 percent of Lehman Brothers is owned by its employees.

But owning Lehman shares has been a losing proposition this year: the company's stock price has fallen more than 65 percent since the beginning of January, amid concerns about the company's exposure to mortgages.

The July 1 share grant was generally equal to 20 percent of employees' 2007 award, and is an advance against future awards, which usually take place at the end of the year.

The shares were granted at $20.96, their closing price on July 1. In previous years, they were granted at a discount to their closing price. But these shares vest sooner, and the holding period is shorter, meaning employees will be able to sell the shares after just three years instead of the previous five years.

The report of the share grant first appeared on CNBC.

(Editing by Phil Berlowitz)

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