So you cut the stock option program and forget about the sock option program. The only way to keep the same level of free cash flow is to keep the same level of cash compensation. So no increase in wages either. Quite the salary cut, for some of these people.
Not really. Most of Cisco's employees have only been at Cisco 3 years or less. That means most of the employees at Cisco are sitting on options that are worthless and aren't likely to ever be worth anything to write home about. So cutting the program wouldn't be the big deal that everyone thinks it is. They could even give everyone a one time cash bonus coinciding with the end of the stock options program to distract everyone and make them feel better about it.
So if you are going to pay 100% of free cash flows for the business, you are, in essence, stating that you are buying the business that it isn't!
Also not really. I would buy 100% of the free cash flows of the business, but I'd discount that stream of FCF using a decent rate to ensure that I account for a reasonable return and the risk I'm taking on. That's the way all good deals are made. And at today's price, Cisco would return a purchaser 13% annually over the long haul. Not bad, but not great.
I'm just not convinced the the average worker out there is as motivated by stock options as they used to be. Nowadays, most folks would rather have the cash in hand. People are mostly risk averse, which means once burned they get way too conservative. So when as a manager or owner, you realize that there are 10 qualified people that are unemployed that I can replace 1 of my grumpy workers who is feeling entitled, you rapidly realize who has the pricing power. I say get rid of those stock options plans or cut them back, start expensing them, and let's all get back to responsible practices.
Anyway, I still think Cisco is a buy at these levels when you remove the geopolitical risks in play today. |
