Baldor execs miss stock gains enjoyed by employees, shareholders

Baldor CEO John McFarland quipped after the company’s recent shareholders’ meeting that Baldor is one company with which employees and non-executive shareholders get the best deals on company stock.

McFarland’s quip is by no means a cheap observation.

When several hundred Baldor employees recently qualified for stock options, the share price was at lows not seen in more than a decade — a fact somewhat disturbing for officers and employees of a company whose share price last flirted with $10 during President Clinton’s first term. The share price has consistently stayed above $20 a share since 1997, but recently fell from almost $40 a share to near $10 in less than nine months. On March 9, the share price hit a closing low of $10.29, only to enjoy a quick recovery and closing May 8 at $25.21.

Fort Smith-based Baldor Electric Co. each fiscal quarter grants options to all employees who hit a five-year anniversary during the next three months. Baldor noted in its 2008 Annual Report: “(Baldor) believes that owners of a company do a better job for the customers and other owners of the company. That’s why, over 10 years ago, the Board of Directors decided to grant stock options to each employee on their 5th anniversary and every 5 years afterward. Many companies believe that stock options are only for the management team, but that’s not the case at Baldor, where all employees have the opportunity to become an owner. Last year, over 1,300 employees received stock options.”

Based on that info, about 325 Baldor employees were recently granted thousands of stock options likely priced no more than $15 a share.

Tracy Long, Baldor’s vice president of investor relations, could not disclose how many shares are awarded each quarter, but did note that as of mid-March employees owned 3.76 million shares of stock in the Employee’s Profit Sharing and Savings Plan.

For the sake of an example, assume the average eligible employee receives 500 shares during a quarter. With a possible top price of $15 per share awarded during this quarter, this average employee received shares valued at $7,500. But in a roughly 60-day period, those shares would have gained around $5,000 in value.

“We didn’t have a chance to buy into that,” McFarland said after the May 2 shareholder meeting, when asked about the recent gains in the share price.

Unfortunately for the executives, they were prevented by U.S. Securities and Exchange Commission rules from buying or selling shares during negotiations to readjust debt covenants. According to Long, there were at least 23 officers and eight directors affected by the blackout.

Baldor, a maker, designer and marketer of electric motors, motor drives, power transmissions and generators, posted record sales in 2008 of $1.95 billion. The company employs between 7,500 and 8,000 in 28 plants in five countries and sales offices serving more than 80 countries. About 2,000 are employed in the Fort Smith area.