Gerstner offered massive stock option to stay put

IBM has offered Louis Gerstner $95 million in share options to persuade him to stay on as chairman and chief executive of the manufacturer for at least another five years.

The company was forced to take decisive action over fears that Gerstner was looking to cash in his stock options and move to another job. IBM is keen to keep Gerstner on since he has been largely responsible for turning the company's fortunes around following his appointment in 1993.

As part of the package, Gerstner will receive two million shares of stock - almost equivalent to the sum of options he has received since taking the job. If exercised, they would be worth $95 million. One condition of the stock options, however, was that Gerstner would be required to stay at IBM until 2002, when he will be 60 years old.

Gerstner has been quick to point out that he was not about to exercise his options, insisting that it was his obligation 'to become a significant shareholder'.

He added: 'Shareholders take a risk when putting money in the company.

Executives should not get a free riskless ride.'

IBM has recently mounted a $16.5 million cash buy-back exercise for its own stock. Gerstner defended the action, claiming that while IBM could still acquire companies, purchases were not the best way to build organisations.