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The stock market gave investors a bumpy ride in 2001, but John Finneran Jr. still managed to hold on and come out on top. The general counsel of Capital One Financial Corp. exercised the bulk of his stock options — some $15.5 million — last year. He cashed in on the financial services company’s stock when it was selling around $65 a share, in late January of 2001 — rallying on the heels of a favorable earnings release for 2000. That stock price was near Capital One’s all-time high, and Finneran’s move was prescient; Capital One stock slumped later in the year. Finneran’s fortuitous timing secured him a first-place finish in options gains among his peers on Corporate Counsel‘s 2002 General Counsel Compensation Survey [ see related chart, "Top 10: Value of Options Exercised"]. In our research, we track not only cash compensation (salaries and bonuses), but also stock option grants and cash-outs for the 100 best-paid GCs. For many top lawyers, especially those who rode the great dot-com wave of the late 1990s, options were a significant part of their compensation packages; even with the stock market in the doldrums, options remain an important lure for prospective CLOs. The bear market of 2001 didn’t keep too many legal chiefs from cashing out. Some just settled for lower returns. The number of CLOs on our list who did cash out actually increased slightly, from 38 in 2000 to 42 last year. Yet the value that they realized — last year’s 100 highest-paid GCs tallied up stock gains of $82 million — was only half that of 2000. In a volatile market, timing can make all the difference. Financial planners note that corporate insiders are more realistic these days and aren’t letting softer share prices keep them from cashing out. After watching the fortunes of employees at dot-coms — and now Enron Corp. — go down with the ship, executives are seeing the advantages of diversification, and are converting options into safer investments. “People are more aware that they could lose it all,” says financial planner Diahann Lassus. The president of New Providence, N.J.-based Lassus Wherley & Associates, P.C., observes that, as a result, her corporate clients “are now much quicker to pull the trigger.” Unfortunately for some, their hands are tied by what Lassus calls the “water torture of the markets.” Each batch of options is exercised at the share price the options were granted at — or the “strike price.” If a company’s stock is trading below that level, as Cablevision Systems Corp.’s has been recently, then its GC, Robert Lemle, can do little with his “underwater” options but wait for them to dry out. But don’t feel too bad; Lemle cashed out a hefty chunk of his options, almost $10 million, last year, before his company’s stock dropped. Robert van Schoonenberg also hit the high notes of his employer’s stock. His option gains of $1.2 million last year were much lower than Lemle’s, but then so is his ranking for cash compensation: 98 on our list, whereas Lemle is happily ensconced in the No. 2 spot. Van Schoonenberg traded in some of his options in Pasadena’s Avery Dennison Corp. last year, when the chemical company’s stock reached its 2001 peak of nearly $60, more than double his strike price. Still, this GC downplays his Wall Street savvy. Van Schoonenberg insists that he is “not trying to time the market,” adding, “I don’t think any of us are smart enough to do it anyway.” He put some of his proceeds toward a condominium in the mountains of Mammoth, a California ski resort. But he says the primary motive in cashing out was to broaden his investment portfolio. AVOIDING RISK “‘Diversification, diversification, diversification’ is the mantra people are hearing,” says financial consultant Elizabeth Anderson of New York’s Bernstein Investment Research and Management. “People are wanting to take some financial risk off the table,” she says, “even if they don’t think this is the best price to get for their stock.” James Buckman is still smarting from his inopportune stock sales. The GC and vice chairman of Cendant Corp. exercised more than 700,000 options at the end of October, when the New York-based lodging giant’s stock slumped after Sept. 11. Buckman concedes that “it was not the best financial decision I ever made.” He bit the bullet because he needed the cash to close on a summer home in Nantucket [ see related article, "Home, Sweet Home(s)"]. Even with Cendant shares trading at around $13 last fall, Buckman still emerged with more than $6 million, thanks to the bargain rates (between $4.60 and $6.50) at which his options were granted. The GC tries to keep the gyrating stock market in perspective. Cendant shares traded in the $20s before Sept. 11. “I was just a victim of the timing. But I was not nearly as big a victim as a lot of people who lost their lives,” he says. After all, he’s still sitting atop a $17 million stack of options — the third-highest stockpile of all the GCs on our survey. HOLDING ON Other factors affect GCs’ timing when it comes to cashing out. Securities and Exchange Commission rules prohibit highly placed insiders from trading company stock before the release of any material information, such as earnings reports and major deals. That can make it tough for top lawyers at acquisition-happy companies like Cendant and Alltel Corp. to pick and choose when to exercise their options. Says Alltel GC Francis “Skip” Frantz: “You can’t just assume that you’re going to have a window period every quarter, because you can’t foretell when pending acquisitions and other things might occasion a quiet period.” So when Frantz had a clear shot at $58 a share, in June 2001, he took it. He turned a handsome profit of $1.45 million on his stake in the telecommunications provider from Little Rock, Ark. But Charles Wall is not afraid to let his option terms get down to the wire. “I just hold on to them and generally don’t exercise any stock options until they’re about to expire,” says the GC of New York-based Philip Morris Companies Inc. Wall is sitting on $11.6 million in exercisable options, yet hasn’t cashed out for years. He views this restraint as a demonstration of confidence in his employer. “I think it’s a great thing to be able to not only show loyalty to the company, but also to show it by holding on to a great investment,” says Wall. That’s easy to say right now. Philip Morris’ stock has shown strong growth, from $40 a share in January 2001 to the mid-$50s range as of press time. But if Big Tobacco goes the way of the rest of the market, next year’s survey could find even this steadfast GC wavering in his resolve.

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