Nortel rethinks options after shares crash

Nortel Networks is revamping its stock options package to try and keep key staff after its tumbling share price made current deals worthless.

The firm has admitted that at least half of the total share options held by staff are currently 'underwater', where the exercise price is higher than the market price.

A recent Andersen report revealed that over half the share options granted at flotation prices by firms listing on the London Stock Exchange in the last four years are now worthless. Over half the companies questioned for the report were hi-tech firms.

Nortel employees will be eligible to receive two new options for every three granted between 12 November 1999 and 12 February 2001, or three for every four granted on or after 13 February 2001.

New stocks will be issued at least six months and a day after the cancellation of previous options, and are only available to non-board members.

John Roth, chief executive at Nortel, said: "Stock options are a key component of a competitive rewards package in the global technology industry where competition for the best talent is always fierce, even in a market downturn.

"This is an extraordinary step that is essential so we may continue to attract, retain and reward our talent in a highly competitive labour market."

As of 31 May 2001, Nortel said that approximately 333 million options to purchase common stock were issued and outstanding, and that approximately 33 per cent of these options are expected to be eligible for the programme.

Nortel lost $2.6bn in the three months to March and has previously said it will cut more than 15,000 jobs this year.