Options bother me, too and I notice that MD got options on 3,200,000
shares in FY1998 that are worth $128,000,000 more now than on
2/1/1998. That's a big chunk of total earnings and it won't appear on
the income statement. The total picture includes:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(B)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dell............. 0 $ 0 832,000 6,048,000 $36,214,480 $200,467,820
Mr. Topfer........... 1,241,000 37,519,304 0 3,698,388 0 163,012,986
Mr. Rollins.......... 408,000 13,921,321 128,000 2,544,000 5,786,558 102,532,852
Mr. Meredith......... 620,000 19,910,401 472,670 1,134,990 22,126,660 49,392,046
Mr. Kelly............ 28,000 734,414 250,376 543,916 11,309,826 22,043,709
So while earnings for Q1 ending May 3 may have been $305 - $320 m,
the options for just these 5 officers went up by $630 m just from
2/1/1998 through 5/15/1998.
But the other side of the story is Dell's buybacks. Diluted shares
outstanding have declined over the past 8 quarters (in
millions) from 783 to 783 to 763 to 744 to 734 to 729 to 721 to 706,
and Dell has stated its goal to keep it flat (but I am projecting 700
for Q1FY1999). The buyback "gains" don't hit the income statement
either, and up to now have more than offset the money passed out in
options.
Nevertheless, option abuses are plenty. The fixed price option
bothers me the most. I think managers who contribute to their
company's growth (could be operational or stock price or a combo)
should be rewarded for only better than ordinary growth.
Fixed price options are a giveaway (and repricing makes it even
worse). Options with exercise prices that are indexed or go up, say,
5% per year would set a threshold and reward only or mostly superior
performance. Just because SEC and IRS rules allow fixed price 10-year
options does not mean that stockholders should ignore the ripoffs or
not push for indexed exercise prices. |
