Amy J, Re:" he doesn't understand the importance of stock options for motivating employees."
You are mistaken. I think he does understand. Better than most I think.
From Buffett's 2001 Chairman's Letter to Shareholder's:
"Though Enron has become the symbol for shareholder abuse, there is no shortage of egregious conduct elsewhere in corporate America. One story I’ve heard illustrates the all-too-common attitude of managers toward owners: A gorgeous woman slinks up to a CEO at a party and through moist lips purrs, "I’ll do anything - anything - you want. Just tell me what you would like." With no hesitation, he replies, "Reprice my options."
How was Enron's management motivated by their options? Hmmmm....
..and regarding BRK's purchase last year of MiTek (manufacturer of low tech steel building components):
" Gene’s managerial crew is exceptionally enthusiastic about the company and wanted to participate in the purchase. Therefore, we arranged for 55 members of the MiTek team to buy 10% of the company, with each putting up a minimum of $100,000 in cash. Many borrowed money so they could participate. As they would not be if they had options, all of these managers are true owners. They face the downside of decisions as well as the upside. They incur a cost of capital. And they can’t "reprice" their stakes: What they paid is what they live with."
He does understand the use options for motivating employees. He's been running successful companies for decades. Berkshire now has 110,00 employees.
More importantly, Buffett understands the importance of stock options to the company's balance sheet. Ultimately, the balance sheet is the financial health check of the company. Correct?
More from the BRK annual letter on acquiring companies who have issued options to their employees:
"Indeed, their [management stock options] reported costs (but not their true ones) will rise after they are bought by Berkshire if the aquiree has been granting options as part of its compensation package. In these cases, 'earnings' of the aquiree have been overstated because they have followed the standard - but in our view, dead wrong - accounting practice of ignoring the cost to a business of issuing options."
You see, he does understand. Although you might disagree with him. |
