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Cendant cuts CEO pay
Real estate, travel services firm also plans to issue fewer stock options and list them as expense.
August 28, 2002: 11:47 AM EDT

NEW YORK (CNN/Money) - Cendant Corp. said Wednesday that CEO Henry Silverman's pay will be cut in half in 2002, and it plans to issue fewer stock options and expense options in 2003, all part of an ongoing effort to bolster its image amid a market-wide crisis of confidence in corporate accounting.

The New York-based real estate and travel services company said Silverman will make about $15 million this year, well below the $36 million he made in 2001. Silverman has also agreed to forfeit annual stock-option grants in exchange for a bonus based on the company's earnings.

Cendant, which licenses several franchises, including Century 21 real estate brokers, Days Inn hotels and Avis rental car agencies, said it planned to issue fewer stock options and account for the options as expenses beginning in 2003.

Market sources said the moves are part of an ongoing effort to respond to general investor mistrust, spawned by scandals at Enron Corp., WorldCom Group and others, while rehabilitating Cendant's image, tarnished by scandals of its own.

"This is a company that's had problems in the past. They're sending the right message to the market, as they have been doing recently," said Jake Fuller, an analyst at Thomas Weisel Partners. "I think it's a positive. Is that going to mean the stock goes up? That's hard to say, but they're doing all the things they can do to improve sentiment."

Long before Enron became a household word, in June 2000, three former executives of CUC International of Stamford, Conn. -- which merged with HFS Inc. of Parsippany, N.J., in December 1997, to create Cendant -- pleaded guilty to accounting fraud charges, and the company settled a shareholder suit for $2.38 billion.

Cendant was flagged earlier this month by the Securities and Exchange Commission for having problems with certifying its financial statements by Aug. 14, as more than 900 companies were required to do. The company said it expected to be cleared by the SEC as soon as it was able to file amended financial statements.

The issue of expensing stock options has gained attention as regulators and watchdog groups look for ways to restore investor confidence. Critics say companies have been able to obscure their true financial condition by not counting options as a compensation expense.

Options became a popular form of compensation in the late 1990s because they gave employees a stake in the company's performance while allowing companies to get away with paying less cash to those employees.

In recent months, several large firms, including General Electric (GE: Research, Estimates) and Coca-Cola (KO: Research, Estimates), have decided to count options as expenses.

In place of stock options, Cendant said it now plans to give employees stock. Silverman, whose contract was extended to 2012, will get no such offer this year, however.

Cendant said Silverman is one of its biggest stockholders, with 8 million shares and options to buy more than 32 million shares.

Cendant (CD: down $0.26 to $14.53, Research, Estimates) shares fell in midday trading.  Top of page

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