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

To: Don Lloyd who wrote (83024)	8/17/2000 4:21:16 AM
From: Don Lloyd	Read Replies (2) \| Respond to of 132070

WSJ August 16, 2000 Business World Smart Investors Let Others Do the Work By HOLMAN W. JENKINS JR. "...Well-designed stock-option plans relieve shareholders of the burdensome necessity of having to monitor management to make sure executives aren't pursuing their own interests against those of shareholders -- by awarding themselves high pay for taking little risk, surrounding themselves with yes-persons, etc. Trust is an endemic problem of organizations, which the best laid incentives cannot completely override. But they help. Consider the paradox of Andrew Smithers, the London-based grump who complains that the issuance of all these stock options will ultimately hurt shareholders by diluting their ownership stakes. What he misses is that the problem is self-fixing. Management's options will be valuable only if the market is convinced that future earnings will be sufficient to compensate shareholders for dilution and still provide them an acceptable return. There's a lesson here. Clever incentives can simplify a basic and universal problem of governance -- known as the "agency problem," or how to make sure someone who is charged with acting in our interests really is. One of the unsung advantages of placing Social Security funds in the stock market is that it would make virtually all Americans beneficiaries of the stock market -- giving them a powerful incentive to oppose policies that in the past may have satisfied some interest-group whim but were hurtful to the economy as a whole...." Regards, Don