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Strategies & Market Trends : Professional Equity Analysis - the Pursuit of True Value

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To: Reginald Middleton who wrote (87)	3/21/1997 1:14:00 PM
From: Rob L.	of 102

I would like to raise the topic of compensation plans for management. I find the issue on the verge to unethical. This in itself should be confusing as management/BOD are supposed to attend honest labour. Mananagement/Officers receive stock in various ways. They usually have a window in which they can advise to sell. At some event after an IPO they decide to unload most of the shares. When asked why they respond with statements like - this is our privilege. However, there is no problem in their mind because it is made sure that the market understands the same amount will be owned again through options! Well, we all know how they are priced.. How can this even be an argument? So, to summarize: Who pays the executives salary? Who pays the executives bonus? Who pays the executive for his shares? Who pays the executive for the opportunity to receive options? Who pays the executive for preferred dividends? Who pays the executive for sale of converted options/convertibles? In my mind it is the SHAREHOLDER. Why, because if the market did not put a value to the shares the vendors market just simply would not exist as the company could not enjoy the buyers confidence. It seems many companies have not heard of EVA and if they have the respons might be 'oh yea, seems good'. The shareholder gets suckered a) when the exec sells and b) via dividends plus the above items. As a bonus for the shareholder he ends up with more dilution and an almost sure substantial decline in share price. Why does not the shareholder have more power? If institutions own a substantial part of a company why is it that these issues exist to the DEGREE that they do? Reasonable compensation for a job well done is one thing, stealing is another thing. How far from the counterparts each companys compensation plan is, is a question of ethics IMO. The shareholder pays for the #M$ the exec receives thru sale just in order for the exec to receive additional options for minimal $s and cause dilution and stock decline. How do we value these things and what about ethics?

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