Is it time for top CEOs to exercise a little pay restraint?

More than 100 US chief executive officers, including James Mulva of ConocoPhillips, Meg Whitman of EBay Inc and Jamie Dimon of JPMorgan Chase & Co, are sitting on unexercised-option paper profits of $6 billion, or $45 million each.

And if held to the end of their terms, those same options may increase to as much as $16 billion. That comes to $123 million a head.

That's what I found in my study of 133 CEOs running companies with current market caps of $20 billion or higher.

If the 447 million unexercised shares that were held by these CEOs at the end of their companies' last fiscal years were still outstanding, and if they had been exercised last Wednesday, the aggregate gains would be $6 billion.

Those option shares have an average of 5.2 years to go before their expiration. Most options contain terms of 10 years.

If those same option shares were held until expiration, and if the companies' stock grew at a normalized rate, the total would rise to $16 billion.

Here's a look at the three big winners of this options derby, based on the unexercised option shares they each were holding as of December 31, 2006.

Mulva, 61, of Houston-based ConocoPhillips had 18 different grants, covering 6.8 million shares. Assuming those shares are still outstanding, his paper profits as of last Wednesday totaled $319 million. If he holds all his shares until their expiration and if Conoco's stock increases at its normalized average annual rate of 9.1 percent, his eventual take would be $643 million.

Terry Semel, 64, the former CEO and now non-executive chairman of Yahoo! Inc, with a $40 million paper profit as of last Wednesday and the potential for $453 million if he holds all his options until the end of their terms.

The assumed future annual average stock price appreciation rate was 11.7 percent.

Whitman, 51, of EBay: $128 million now, $355 million at end of terms and 10.8 percent future appreciation.

Samuel Palmisano, 56, of IBM Corp: $36 million now, $141 million at end of terms and 7.7 percent future appreciation.

Dimon, 51, of JPMorgan Chase: $44 million now, $112 million at end of terms and 7.3 percent future appreciation.

It's certainly true that every company in my study won't grow at precisely its normalized rate for the remainder of the option terms. Some companies will do a lot better, others will do worse.

And it's also true that few of these 133 CEOs will wait until the very last days of their option terms to exercise.

As a result, the potential gain figures should be considered illustrative rather than definitive.

If a CEO like Mulva is sitting on actual option profits of $319 million and is likely to receive almost double that amount by waiting until his options expire, does it make any sense to grant him 6.8 million more options?

How can his company's board argue that the new options will make him work harder and smarter when he is already working as hard and as smart as he can?

It seems reasonable to say that for many of these 133 CEOs there isn't any need to keep giving them more and more pay goodies.

Graef Crystal is a columnist for Bloomberg News. The opinions expressed are his own.

(China Daily 08/24/2007 page16)