Marsh & McLennan to Reprice Some Employees’ Stock Options Hurt by Probes

By | May 23, 2005

Shareholders of Marsh & McLennan Companies Inc. last week approved a plan to replace some of the stock options for employees hurt by the sharp fall in the company’s stock.

Marsh & McLennan, the nation’s largest insurance brokerage, said the one-time, voluntary exchange would affect up to 5,000 of its 60,000 workers.

Marsh’s shares fell sharply after New York Attorney General Eliot Spitzer last October accused the New York-based company of bid rigging, price fixing and using hidden incentive fees. Marsh & McLennan on Jan. 31 agreed to pay $850 million in restitution to settle the allegations.

Last Thursday, the company’s shares rose 51 cents to close at $29.76 on the New York Stock Exchange. That’s still far below the $46.13 the shares traded at before Spitzer’s probe was announced.

The new option program was approved at the company’s annual meeting. Options, which give holders the right to buy stock at a set price by a specified date, are used by companies to reward and retain workers.

The company said that as of March 21, there were outstanding options to purchase more than 86 million shares of Marsh & McLennan stock. It said that about three-quarters of the options were 25 percent or more below the exercise price. These workers will be given the opportunity to exchange them, but for fewer shares with a lower strike price, the company said.

Chief Executive Officer Michael G. Cherkasky told the meeting the company was working hard to recover from its regulatory and legal problems and regain the trust of the businesses who use Marsh to buy property and casualty insurance.

“I am optimistic about Marsh,” he said. “I think we are headed in the right direction.”

He noted that Marsh & McLennan has changed its management structure since the ouster of former Chairman and CEO Jeffrey W. Greenberg last October. The company has also stopped accepting incentive fees, cut off unprofitable customers and laid off some 5,000 employees.

Joan Liebowitz, one of just four shareholders who spoke at the meeting, asked how long investors should wait before Marsh & McLennan’s share price recovers. Cherkasky told her, “We are impatient also.”

Liebowitz, a widow who lives in New York, said after the meeting that she has traded Marsh & McLennan and other companies’ stock. She said she worried it would take the brokerage a long time to recover from the scandal so its shares could remain depressed.

“I didn’t have confidence in what he (Cherkasky) was saying,” she said. “I didn’t have a feeling it was a good investment.”

Another speaker at the meeting who identified himself as a Marsh & McLennan retiree said he and other retirees were unhappy that the stock option swap didn’t apply to worthless options retirees held.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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