With the recent discussion of options fresh in my mind, I came upon the following item in the AR of a company I'm looking at, Knight Transportation (KNX).
The Amendment also establishes a limit on the number of shares with respect to which options may be granted to any one plan participant during a calendar year, which allowed the Company to give Kevin Knight, the Company's Chief Executive Officer, a one-time grant of an option to purchase 500,000 shares of the Company's common stock. The one-time option grant was made in recognition of Mr. Knight's past services and reflected the Compensation Committee's determination that Mr. Knight's compensation package in the past had been lower than was warranted by the Company's performance, trucking industry practices, and the practices followed by growth companies in other industries.
KNX looks like a fine company to me, and I think Mr. Knight is doing a tremendous job, but did they really have to toss him 500,000 extra shares out of nowhere to motivate him to continue doing a good job running the company that bears his name? Also note the nice little touch: they are "limiting" the number of shares and this allows them to award an extra 500,000 to Mr. Knight. I didn't mention the pernicious influence of "compensation consultants" in my previous diatribes, and Warren Buffett has been much more eloquent on that subject than I could ever be, so I won't belabor it here either. This little gem does have a compensation consultant's fingerprints all over it. These days, only top management, with the aid of these folks,and members of public employee unions, with the aid of politicians who stack the deck in their favor, get to play the leapfrog game that causes compensation to spiral out of control.
IMO, there's no justification for awards like this but I'd be willing to let it go if I believed that there was even the remotest chance that somewhere, some time a compensation consultant for a competitor might write something like "Knight Transportation has eaten your lunch for the past few years, and a monkey could have done just as good a job running your company. Therefore I recommend that 500,000 shares previously awarded to management be cancelled as a result of their sub par performance." However, we all know that's not what compensation consultants are paid to do. |
