the funds need to be deployed, likely into the stock market, whether it is buying a companies shares or investing it in other ways. Essentially, it is money that will need to go into the markets. The comment was on Barrons 2-3 weeks ago.
>>> Oh, I see what you mean. Once the companies inject cash contributions (but not their own stock shares:) into these pension plans to 'top them off', that cash will be invested into stocks, bonds, and GICs.
>>> Yes.
Re stock options as poor motivators to 'incentivize' employee performance: I believe that report to be skewed. I would say that since 2001, stock options have been less important to employers because the market has continuously declined, making the options worthless or so far under water that they stand little chance of moving into the green (unless you are in the same camp as YHOO, AMZN or EBAY...)
>>> Yes, you are correct on that point (I'd thought about mentioning it, but my previous post was getting a little lengthy :(
Prior to 2001, options were a very important incentive, especially in technology related companies. Once the market has established some form of a bottom, I fully expect options to return to favor as a meaningful tool to attract and retain talent.
>>> Yes, and no.
>>> Stock options are an important incentive... but ae no better, arguably are worse, than simply granting shares of stock to employees! With shares, employees are tied to corporate performance whether the company does well, or poorly. If you give a CEO 100,000 options, and the stock declines below the conversion price... he just walks away from them. He is out nothing.
>>> But, if you give the CEO 50,000 or 100,000 shares of stock... he very definitely has a stake to defend. (And his incentive is to promote stable, solid, growth and honest accounting and reporting). With only options, his goal may be to 'cook the books', and cash out his options grant for a fast buck... before the flim-flam is discovered.
>>> Stock shares tie the employee more closely to the companies performance than option grants (which is what the studies show), and that, after all, is supposed to be the rationale for options grants - which DO dilute the investment of existing shareholders.
>>> During our recent period of bad markets, and dishonest accounting, options had an unfair advantage over share issues because of the tax loophole!
>>> Companies which issued stock options could IMMEDIATELY deduct their full value as an 'expense' (the same as any other employee compensation expense) against their taxes... but they were - and still are not - required to show that expense as a charge against earnings in their public reports.
>>> In three out of the previous 5 years, Microsoft (supposedly the most profitable company on the planet), paid ZERO federal taxes because of this loophole (leaving the rest of us to carry the tax burden). And, if their stock options employee compensation had been properly booked as an expense (because it sure as hell is an expense to their existing shareholders, who's stake is getting diluted)... in several of those years they would have booked NO NET PROFITS (or only minimal profits), because of this massive dilution. In actuality, HPQ - for one - posts larger real profits than MSFT.
>>> On the other-hand, companies which issued shares of stock to employees as a form of compensation, got to use the same tax deduction... but were (unlike the options grantors) forced to clearly declare the same expense against reported earnings.
>>> Obviously, when the new rules finally put options and share issues on the same level playing field, I believe options grants will fall greatly... in favor of grants of restricted stock. |
