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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Mama Bear who wrote (83016)	8/16/2000 3:52:00 AM
From: Bilow	Respond to of 132070

Hi Mama Bear; More thoughts on options... Probably the biggest problem with stock options is that they are given to individuals (i.e. employees), but the payoff is based on the actions of the group (i.e. the company as a whole). In this sense, they possess a bit too much in common with, well, Communism. At any company, even the CEO can do very little to actually influence the results at the company. There are a lot of CEOs that will claim otherwise (at least in the good years), but the actual fact is that they will perform very little of the actual work that gets done. Instead, they have to rely on the work of others. (The same goes with the Presidency of the US. The guy has little effect on the economy, but takes all the credit in the good years.) A better way of rewarding employees is to create a program of bonuses, somehow related to job performance of the individual. The thing I don't like about these is that they tend to be worse than Communism... The other basic problem, (which is the same one that effects all joint stock companies) is that a stock holder cannot be held liable for the debts of the company. This is a form of "insurance" and it means that the system is subject to the classic moral dilemma of insurance. Increases in the number of people running around your business who are in a position to make money if the company's business is burning hot is going to inevitably increase the amount of buildings that burn down. But if they do something risky and it loses, they don't have to pay. So why not try and reward people for merit or behavior instead of giving them shares in the company? I believe that the reason we have so many stock options these days is because of the stock market, plus the tax advantage to the parties involved. But when the market craters, no one will want stock options and they will largely go away. Working as an engineer, I have repeatedly seen management swing for the fences. Management is put in a position where they can be fabulously wealthy if they make money, but not have to pay the debts if they blow it. Amazon is probably the poster child for this sort of thing. And if you were a shareholder in Amazon, you did well with Bezos leadership. But if Amazon were your own hot dog stand, and you were stuck with your share of the company, (i.e. an illiquid market for shares), then you would have seen him piddle away a lot of money for very little return, and in the process make himself very wealthy. The way I see it, the option strategy (for a business owner) mostly applies to situations where very liquid assets can be sold at unnaturally high prices to a uncritical public. Options are not an ideal way of creating real, long term wealth for the economy as a whole, nor for the very long term share holders. -- Carl