The regulatory filing is written, as all are, in language only a lawyer could love: so impenetrable that your eyes glaze midway through the first sentence.
That, of course, is intentional.
“On May 22, 2020, Raytheon Technologies Corporation (the “Company”) entered into an amendment (the “Amendment”) to the Employee Matters Agreement previously made by and among the Company, Carrier Global Corporation (“Carrier”) and Otis Worldwide Corporation (“Otis”), dated as of April 2, 2020 (the “Agreement”).”
The reader (the “Reader”) could be forgiven for giving up before reaching the part with the news that prompted the company’s May 29 filing with the Securities and Exchange Commission.
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But it’s worth working to understand the upshot of the Waltham company’s action — a financial rescue of sorts for some current and former executives and managers, disclosed late on a Friday afternoon — because it says a lot about how companies take care of their highest-paid employees while often leaving ordinary workers to fend for themselves, even in these rough economic times.
Consider that at the start of last month Raytheon Technologies said it would furlough an undisclosed number of workers, postpone merit increases, and cut pay for some salaried employees. The moves were part of a $2 billion cost-reduction plan, the company’s response to the collapse of commercial aviation at the hands of the coronavirus. CEO Gregory Hayes took a 20 percent pay cut.
“While many of these measures have been difficult, it is the right thing to do for the business,” he said at the time.
Back to last week’s filing. Here’s a summary (with an appreciative nod to Bloomberg’s Anders Melin, whose news story was picked up by the Globe).
Raytheon Technologies, the defense and aerospace giant created earlier this year when United Technologies Corp. completed its acquisition of Raytheon Co., changed one of the dates used to set the price of unexercised stock awards held by nearly 4,000 top leaders, managers, and retirees.
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It doesn’t sound like a big deal, but it was for those current and former employees who held options and other awards in the old UTC that needed to be converted into equity of the new company.
Originally, Raytheon Technologies planned to use the average price of the new company’s stock a few days after the deal closed April 3 as part of the conversion formula. But when a sharp rise in the stock pushed that average to $63.67, the company opted for a more advantageous benchmark: the stock’s opening price on the first day of trading, which was $51.
The nearly 25 percent price spike, which came as the overall market also rallied, was good news for most shareholders. But it was an unwelcome development for holders of those UTC stock awards, because it reduced the number of shares in the merged company they would receive or narrowed the profit they could make on exercising their options.
The switch, the company said, was permitted under the plan and was made to address the “material discontinuity" between UTC’s pre-merger stock price and the post-merger price of Raytheon Technologies shares.
The company characterized the use of the lower price as a way to offset the financial hit to the current and former UTC employees. (Employees of the old Raytheon had gotten new shares based on an exchange ratio set up at the time the deal was announced in June 2019.)
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“The goal of any spin-off conversion is to not unfairly increase or decrease employees’ previously granted equity," the company said in a statement. "This decision, applied in the same manner across the equity awards of almost 4,000 legacy United Technologies employees, was made to reduce some of the losses that would have otherwise been suffered by dedicated employees whose hard-earned equity is being converted from United Technologies to Raytheon Technologies.”
Neither the filing nor the statement disclosed how much in losses was averted by the move.
But the optics, as they say, aren’t good.
It looks bad to bail out upper and middle management — some 90 percent of the employees who benefited were non-senior managers — while putting other workers on ice. But the problem here goes far beyond appearances — and far beyond Raytheon Technologies.
Under the cover of attracting and retaining talent, many public companies dole out awards such as stock options, stock grants, and restricted stock units on top of employees’ salaries. The awards work differently but are invariably pegged to the price of the company’s stock. This is supposed to align employees’ interest with those of investors; if the shares rise in value, both groups win.
The theory is good, and when well managed, stock-award plans can be fair and effective, especially if they are spread liberally throughout the company.
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Unfortunately, at many companies such compensation doesn’t make it down to the rank-and-file, at least in the outsize proportions enjoyed by occupants of the C-suite and their immediate underlings. Stock-based compensation is a big reason why executive pay keeps rising while worker pay stagnates.
The evil of managing a company for short-term profits in order to drive the stock price and make stock awards more valuable is well-documented. But there are more subtle — and legal — strategies that help CEOs make sure they and their teams almost always come out on top: repricing options lower when the company’s stock falls, so that executives can win even when shareholders lose, for example, or setting performance goals that are far too easy to hit.
So don’t blame Raytheon Technologies for doing what the rules allow. It has done nothing out of the ordinary.
It is simply yet another example of the inherent inequity in equity-based compensation.
Or as Ice-T rapped: “Don’t hate the playa, hate the game.”
Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.