Use facts to your advantage mindmeld: 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.
You can't have it both ways. If the company is a good investment, then the options that were granted last year will be worth big bucks. Even though they are 30% underwater at the moment.
Take your assertion here: And at today's price, Cisco would return a purchaser 13% annually over the long haul. Not bad, but not great.
The stock is at $13 or so. In 9 years at 13% that makes it worth $39 or so. Which makes the options granted last year worth 6 Billion dollars to folks who hang on and exercise. Which is about equal to the cash wage cost of the company last year!!! Which is something to write home about. Buys a lot of postage. Check your facts by reading the 10-K carefully. That's why it is published.
And it's not getting better, it's been getting worse. In the three months ended October, Cisco issued options at 18% higher rate than in 2002. Another 82 million options in 3 months versus 282 for the previous fiscal year. And the average price of options granted and assumed was $10.07 - so I'm sorry but it seems like the options given out less than a year ago are on average in the money by 30%. These options are going to be worth something unless the stock sinks into single digits and stays sunk for the next 9 years.
I'm sorry mindmeld, but the options being handed out are worth a lot of money.
I know folks who write home about a 10% bonus. You can bet that as a 100% bonus options are something to write home about.
Before you make such silly assertions it's useful to check the facts against other silly assertions in the same post. It's kind of crazy when they cancel each other out.
Here we are more or less in alignment: 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.
This doesn't change the fact that the as-reported costs of doing business, today, are much lower than the real costs of doing business. And if you think that the real costs can be lowered, then you are asserting that the companies are overcompensating their employees. Which is a breach of management's fiduciary duty to shareholders. Either they believe these costs are necessary, or they are asleep at the wheel. From where I sit it is awfully difficult to discern the difference.
So I err on the side of assuming management is being honest but not totally forthcoming with the truth. So I look for the unreported costs (which aren't required by law to be reported as costs) and factor them in and voila. I get a picture of what management is saying is necessary to be the leading supplier of stuff that makes the Internet go. Which is, essentially, to pay folks so much money that the company is operating at a loss, and to do so with non cash so at least the cash part runs a surplus.
Not being one of those lucky guys with a sock drawer full of 100 Billions, I can't go buy the company and put things to rights. Even if I could pretend I knew how. So I just don't buy shares and watch and wait while the rest of the planet figures out that a cash profit plus a noncash loss works out to a loss when the noncash part is as big or bigger than the cash part.
You can fiddle all you want with rates of return in order to figure out what the company it isn't could be worth if only it was being run differently and if only employees took a 50% pay cut. But unless you have a rational expectation that it WILL be run differently, that approach is just a sophisticated method of wishful thinking.
John |
