UMC to provide its employees with stock option deal

United Microelectronics Corp (聯電), the world's second-largest supplier of made-to-order chips, will for the first time give employees stock options to keep up with rivals that offer better compensation.

The company will allocate 1 billion options that can be converted into the equivalent of 6.4 percent of its outstanding stock. Half of those shares, worth about NT$29 billion (US$856 million) at their current price, can be purchased within two years and half within four years, the company said in an e-mailed statement.

United Microelectronics is trying to provide more incentives to employees to keep them from being poached by rivals. The shares will complement bonuses offered in the form of cash or shares that are immediately redeemable, the company said.

"Now is a good time for this plan," with shares in Taiwan chipmakers at almost record lows, said Michael Ding (丁予嘉), who counts United Microelectronics shares among the US$47 million in stocks he manages at International Investment Trust Co (國際投信) in Taipei. "United Microelectronics probably needs to do this to retain good engineers."

The company doesn't plan to count the options as an expense on earnings statements this year because they may not be exercised for two years, said Liu Chi-tung (劉啟東), a director of investor relations with the company. United Microelectronics declined to comment on whether the options would be counted as an expense in future.

United Microelectronics' rivals have offered more attractive packages to employees, Liu said. Taiwan Semiconductor Manufacturing Co (台積電) said in a statement to the Taiwan stock exchange earlier this year that it would issue 1 billion options to employees, without giving details on when the options might be exercised.

Semiconductor Manufacturing International Corp, a rival startup in China, poached 50 Taiwan Semiconductor employees last year, the Taiwan company said earlier. Semiconductor Manufacturing offers stock options as well as other benefits that include subsidized housing and free education for children of employees.

Intel Corp last week said it won't alter its accounting to treat stock options as an expense, which would have reduced profit at the world's biggest chipmaker by 80 percent last year.

``This potentially will eliminate the pressure to keep up with competitors,'' Liu said. ``We listened to investors, who preferred options over free stocks.'' One Taiwan Semiconductor share traded for NT$50 yesterday, or 1.73 times the NT$28.9 price of one United Microelectronics share.

Taiwan Semiconductor had 18,500 employees last year, or about 2.13 times the 8,700 workers at United Microelectronics.

Intel plans to keep dilution related to options to an average of less than 2 percent a year, spokesman Tom Beermann said. Intel spends about US$1 billion a quarter to buy back stock and limit the drop in share value caused by issuing new stock to workers.

United Microelectronics said it will buy back 20.7 million shares, or 0.16 percent of the outstanding stock.