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July 17, 2002
Ford Offers Stocks for Exec Loyalty
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ring an exodus of talented executives after heavy losses, Ford Motor Company has asked its top officers to sign a strict non-competition agreement, the Detroit News reports.

Executives agreeing to pledge their loyalty to Ford Chairman and CEO William Clay Ford Jr. will receive stock options in return. Ford declined to comment for the News on the specific financial terms of the agreement, saying only that the number of stock options executives receive is relative to their position in the company.

According to the News, Ford asked the 52 top officers in the company to sign the voluntary agreement. Many have already done so, precluding them from taking a job with a competing auto manufacturer for two years. Clauses from the non-competition pact will also be included in contracts signed by new executives who join the company.

"There is much more of a threat from people poaching your best talent today," said John Challenger, CEO of Challenger, Gray & Christmas, a Chicago-based outplacement firm, in the Detroit News article. Thirty years ago, employees in the Big Three automakers rarely left to join a competitor. However, that culture has slowly been replaced by a "free agent" mentality.

Previously, Ford's non-competition agreements stipulated that violators relinquish pension benefits and stock options, but in such cases the new employer typically makes up for those losses. The new agreements are strong enough to be upheld in court, according to the News.

"In general, executive agreements are getting much more specific in terms of noncompete agreements," Edward Steinhoff, an executive compensation consultant for Mercer Human Resources Consulting, told the News. "In the past, they have been difficult to enforce."

The move is likely to anger many Ford employees, the News reports. In its cost-cutting efforts, Ford has delayed merit pay increases for white-collar workers, suspended bonuses, and shifted more health care costs to salaried employees and retirees.

Furthermore, stock options - once seen as a good way to align executives' pay with stock performance - have come under fire in the wake of the Enron collapse and other corporate scandals in which executives cashed in millions of dollars in stock options shortly before the companies collapsed.

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