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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Bob Rudd who wrote (13990)	2/22/2002 2:43:51 AM
From: Don Earl	Respond to of 78661

Bob, <<<Warren Buffett wrote, "If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?">>> I know there are a lot of Buffett fans out there, but the logic train is faulty on this particular statement with false to fact relationships. The answer to question number 1 is that options are a form of compensation. Question number 2 can't properly be answered as not all "forms of compensation" can be treated as an expense. There are plenty of persons who would prefer to work for lower wages in a happy work environment, than they would for higher wages in an unhappy environment. In other words, the compensation is pleasant working conditions, which while it has a real value to the employee, it is not an expense. The company is able to provide compensation, at no expense to the company, while adding real value to the employee, and actually cut real operating expenses in the process. Stock and options are free money to the company. All they have to do is print up a few more shares and pay a negligible registration fee. Microsoft employs 47,000 people. Over a 20 year period, the 400 million shares issued works out to an average of 425 shares per person per year. Issuing the options in lieu of an average of $20K per year per person in cash, saves the company close to $1 billion per year in wages. I'd be willing to bet that Warren, like most institutional investors, always votes his stock in favor of whatever the Board of Directors propose. If there's anyone in the world in a position to shade the odds in a proxy fight against increasing outstanding shares or increasing option grants, I would think it would be Warren. Maybe if folks such as Warren spent less time crying the blues about compensation, and more time exercising his rights as a shareholder, he might have less to cry about. Some years back I held stock in what used to be S3. About every 4 years the directors would propose to just about double the outstanding shares and issue most of it to themselves as compensation. When the proposal came up while I held the stock, I voted my shares against it. When it passed anyhow, I sold the stock. I never considered it an accounting issue, although it still seriously annoys me if I stop to think about it. I notice in the DEF14A that Warren owns 35% of BRK. Did he buy all of his shares on the open market? Or did he decide somewhere along the line that that was his share of the company? His compensation so to speak.