Good morning Meathead,
First, don't confuse stock repurchases with options. They are two separate and distinct items.
Second, in the case of your friend, your friend did not receive options for 1200 shares, rather he received the promise of being granted options to buy 1200 shares from the company over a five year period of time. As he "vests" he will be able to buy the shares from the company at the rate of $85 (hypothetically). Now ask yourself this: doesn't this option have a value, and if it does who bears the cost? Clearly, had your friend purchased 1200 shares of stock directly from the company in exchange for $85 per share at the time the market was $85 there would have been minor dilution, and no cost to the stockholders provided that the company repurchased 1200 share on the open market. But the issue here is that the option to purchase at $85 has a value. What is the value of a call exercisable in 5 years at $85? No such instrument exists so I can't give you a definitive answer, but there is a value to such an instrument, and that value is borne by current shareholders.
Third, I didn't mean to imply that top management is the only recipient of these options. What I did mean to say is that on a percentage basis top management receives the vast bulk of these options and often propels their compensation to obscene levels. And these are the same folks that immediately turn around and sell the stock as soon as they exercise the options. Go to Yahoo and click on the insider trading option for any company that issues employee options and you'll see what I'm talking about.
Meathead, I am in favor of giving talent top dollar for their services. That's not the issue. The issue is knowing how much we are paying for those services and deciding based on that price tag whether it worth it. Suppose you had been a Disney shareholder. Would you not have been upset when you realized the enormity of Michael Eisner's compensation package?
These compensation package perpetuate a dangerous plutocracy in corporate America. Let's watch with interest at how Cendant deals with Forbes in the CUC case. He claims he knew nothing of the fraudulent accounting. I am waiting with bated breath.
TTFN,
CTC |
