EA offers new incentive to key staff as existing options go underwater

Electronic Arts is proposing to exchange select employees' underwater stock options for new options at a better price, in an effort to retain key staff members by compensating for the poor performance of the firm's share price.

According to a report on The Street.com, "key employees" including the publishing giant's top executives will be granted additional shares and options as a new incentive to remain with the firm.

The weak stock market performance of the giant publisher means that many employees of the company currently hold stock options at prices significantly higher than EA's share price - rendering them effectively worthless, and effectively removing any financial incentive for staff to remain with the company.

EA's share price has fallen by 18 per cent over the past two years and currently trades at just above US$43.20 - down from a high of around US$70 in 2005 - leaving many employees with options that would actually lose money if they were to be cashed in.

"We believe that to enhance long-term stockholder value we need to maintain competitive employee compensation and incentive programs that will assist us to motivate and retain our employees," the company said in a proxy statement cited by The Street.com.

The poor performance could make it difficult to gain shareholder approval for the options exchange plan, which the company will seek at the annual shareholder meeting on July 27th.

The company does not need shareholder approval for the retention awards - but as part of the overall plan, it is seeking an increase in the employee stock grant plan to enable additional restricted stock to be granted in the future.