Investors in Compaq Computer Corp. have been feeling anything but bullish of late. The stock of the personal computer giant has been halved since last summer. Last week, Compaq said it would cut 5,000 jobs, and miss its estimated first-quarter earnings by nearly a third.

While employees and shareholders are feeling the pain, Compaq CEO Michael Capellas is doing just fine. He received $5 million in salary and bonus and a hefty dose of options last year. There's more. In 1999, Capellas borrowed $5 million from the company to buy Compaq stock. With that position having fallen in value, Compaq earlier this year disclosed that it would forgive the loan over the next three years

For a company with $42 billion in annual revenues, writing off a $5 million loan as may be financially insignificant. But the action is merely the latest example of a larger trend that is fundamentally unfair and damaging to shareholders.

Over the last several years, companies ranging from Compaq to Priceline.com have extended hundreds of millions of dollars in cheap credit to their top managers. One executive compensation consultant I spoke with believes that about 60 percent of new employment agreements inked by CEOs contain a loan for one purpose or another. Most big-shot borrowers use their shareholders' cash to buy stock in the companies they run.

DESPERATELY SEEKING ASSETS

The trend started when institutional investors began pressuring CEOs to amass significant equity stakes in their firms, the better to align their interests with those of shareholders. In response, many companies required CEOs and other top managers to purchase shares. To facilitate the acquisitions, companies agreed to lend the CEOs money at favorable interest rates.

As the stock rises over time, it was thought, CEOs would sell shares and pay back the loans. Everybody wins. But when stock prices plummet, as they have in the past year, companies face a dilemma. Their top employees may be on the hook for seven-figure loans, and the assets backing the debts have lost much of their value.

HOLDING THE BAG

When that happens, loans to executives, which companies list on their books as assets, can quickly become burdensome liabilities. In the late 1990s, insurer Conseco loaned or guaranteed more than a half-billion dollars in loans to directors and executives, which they used to buy Conseco's high-flying stock. When the stock collapsed, shareholders were left holding the bag. Last April, former CEO Stephen Hilbert lost his job, partially as a result of the disastrous loan program as reckless as Conseco. But curious investors should take a look through the annual reports (10-Ks) and proxy statements (DEF 14s) that companies file with the Securities and Exchange Commission. Loans and loan programs are detailed in the sections dealing with executive compensation or related-party transactions. Troll through the filings and you'll find some loan programs that are quite conservative. Herman Miller, the company that makes my ergonomically correct Aeron chair, lends cash to its top 150 managers so they can meet stock ownership requirements. But executives can only borrow 20 percent of the total purchase price, and the company won't put more than 2 percent of its total assets out in loans.

But there are also gems like Opus360. The online human resources company went public at 7 last spring, and now trades hands for about 15 cents a share. In March 2000, Richard Miller, the company's president and chief operating officer, took a $1.5 million, 7 percent loan, so he could exercise options to purchase 300,000 shares of Opus360 stock. Those shares are now worth just $45,000. With the entire company worth less than $8 million, it could sure use that $1.5 million back.

PRICELINE'S LARGESSE

Priceline.com in 1999 and 200 laid out some $14.4 million in loans at favorable rates to the top executives it recruited from Fortune 500 firms: $6 million to Chief Executive Officer Daniel Schulman, $2 million to Chief Operating Officer Jeffery Boyd, $3 million to then-Chief Financial Officer Heidi Miller, and $3.3 million to Chairman Richard Braddock. The executives used the cash to buy Priceline's high-flying stock.

But with the stock having lost more than 90 percent of its value in the past year, its doubtful the executives will be able to repay the loans with proceeds from stock sales. And when Heidi Miller left the company last year, her $3 million loan was simply forgiven.

When loans are forgiven, they become a form of income, and the CEOs must pay taxes on the sum. Frequently, shareholders -- not the executives -- are stuck with the tax bill. Compaq is lending Michael Capellas another $2.5 million to "defray the immediate tax impact of the future loan forgiveness and partial vesting of the restricted stock."

Company loan programs allow CEOs to buy their own company's stock on margin. That's a lazy -- and risky -- way of building equity. And these sweetheart deals are another sign of how CEOs are akin to royalty. For years, they've been immune from the sorts of quotidian challenges that the common folk must grapple with on a daily basis -- dealing with HMOs, flying crowded commercial airlines, finding parking spaces. CEOs who obtain low-interest loans to buy stock, and then don't bother to pay them back, provide another example of how the rules that we live by simply don't apply to this exalted class.