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Cuts in incentives upset 3M supervisors
3M managers learned that the company will trim its long-standing profit-sharing and stock-option plans. The company says changes are necessary to help "support growth.''
By Dee DePass
Minneapolis Star Tribune
Saturday, December 16, 2006

3M Co. supervisors, managers and unit directors learned this week that the Maplewood company is planning to significantly cut its stock-option plan and end the quarterly profit-sharing checks it has disbursed since the 1950s.  Profit sharing now will be paid annually, rather than quarterly, beginning in 2007 for 110 top-tier executives.  The switch will take effect for all other managers in 2008.  Profit-sharing checks will be tied to business unit performance and will be issued on March 15 of the subsequent year.  Some lower-level managers, supervisors and salespeople no longer will be given stock options.

Mark Nagorka, 3M's director of global compensation, said Friday that the changes are being made to better align the company's incentive compensation plans with those of its peers.  He said 3M's stock-option plans have been considerably more generous than those of other companies and were off-putting to shareholders.

More rigorous federal accounting changes have made stock options more transparent to investors, creating "an increased scrutiny by shareholders that see these plans as overly dilutive of their holdings," 3M said in a letter to workers about the changes.

A copy of the 13-page letter obtained by the Star Tribune said the compensation changes are necessary "to support growth and profit for 3M.  ... It is imperative to 3M's future that we grow the company faster.  We intend to harness the creative powers of 3M employees to do that."

Several affected managers and supervisors, who spoke to the Star Tribune on the condition of anonymity because of concerns about losing their jobs, said that the company is going too far and that the changes could cut their pay from 5 to 35 percent.

One manager said managers and directors will receive about half of what they got in the past.

"This is not the same 3M," said another manager.  "It's like going through a divorce.  You've been with the same partner for decades, and suddenly they are not the same person you joined ties with."

Nagorka disputed the claim that the changes will have such a harsh impact, but said he understands why the workers are upset.

"This is an enormous change.  We have had a profit-sharing plan in place since the early 1950s, so people who are long-term 3Mers are really not familiar with any other form of short-term incentive pay.  So they really find this to be a major change in 3M and 3M culture," he said.

He added that the "average employee has about 11 percent of their total cash compensation in this profit sharing" each year, with top-tier executives getting substantially more.  Lower-level managers typically receive $5,000 to $8,000 worth of stock options a year, he said.

CEO George Buckley came to 3M about a year ago from boat and bowling-ball maker Brunswick Corp.  3M's stock price has moved between $67 and $88 since then, closing Friday at $78.31, nearly unchanged from when he arrived.

3M will issue a one-time "transition" check worth about 40 percent of the expected annual bonus to executives in August 2007 and to managers in August 2008 to help ease the move away from the quarterly payments.  The remainder of the bonus will be paid after calculations are complete in March of the following year, he said.

Isaac Cheifetz, president of Open Technologies Consulting, said 3M faces a challenge "to implement this kind of system in a way where employees can understand and relate to it and have enough clarity where employees are motivated by it."

The changes were approved by the compensation committee of 3M's board of directors last month.

Dee DePass 612-673-7725