Carl, the problem you describe isn't an Intel issue, but an industry issue.
This is a long post, and hopefully it may be a helpful core dump on some things about capital structures.
I'm very familiar with capital structure for many companies in the private equity markets, but not the public equity markets so my example (est of 5%) might be totally wrong, however, I'll take a stab at this anyway: 400,000 * $16 * 4 yrs = 5% * 2B / 4 yrs. Would you like a $2B company to steal the CEO or COO of Intel away? Of course, none of us would. This creates a floor.
Your post implies, equity %'s in the industry aren't standard, when in fact they are. In the private market, give me any resume or bio, and I can tell you that persons % equity value, and you could give that very same resume/bio to any other entrepreneur or investor, and they should also be able to tell you too, and guess what? The figures will be pretty much the same: because there are standards that the industry follows. And the total supply is capped by the size of the SOP pool, so the supply is limited. Size of SOP is an industry standard % too.
In private equity markets, VCs have equity tables for each stage, each position, to help guide their portfolio companies on these matters. Where do these standards come from? VCs & companies get them from their high-tech law firms and from the equity comparison surveys performed on hundreds and hundreds of companies available through the leading HR firms. The public equity markets operate in a similar fashion, with HR surveys on standard equity %.
In the private equity markets, when companies make decisions on equity, they run it by their lawyer as the final check. Boards rely totally on lawyers to do this. But the lawyers have to be sure they are guiding not just the company, but also the investor. Pitt made a press release on this today, which I found very interesting.
In the private equity markets, the only time something might get slightly out of the box, might be in one or two rare scenarios in the hiring process.
The best talents are like superstars in sports. That's just how the industry is. Fortunately for those that invest or work in high-tech, unlike other industries such as Hollywood & Sports, at least in high-tech the average investors does a heck of a lot better, and the average employee can make a lot more money than those industries where only the superstars make money.
I'll share a hypothetical example that doesn't apply to Intel in any way, but might exemplify some of the issues in comp structures: consider, if one hires the best CEO available on the market that has a proven track record of doing successful IPOs over and over again, the median equity % from surveys may not be appropriate, especially when there are competing bids on the table and other companies are wanting the same person. This is where equity boards might try to get creative, or maybe they don't.
How do you protect your investors from dilution and yet attract the best talent? How do you protect your SOP pool for future and existing employees so everyone is motivated to drive value, yet attract the best talent? Should a company stand firm on keeping the % equity to the industry median standard to avoid diluting investors & existing employees more than standard, but then discount the grant price to make up to get the best talent? I don't know the answer to something like that. One might ask questions like, how would such things impact existing investors or employees? You can see there are a zillion questions when it comes to compensation, and it's not like there's an industry-wide manual with corporate guidelines indicating, "here's how you do it."
I would imagine it's rather puzzling in the public markets as well. At a minimum, it would be helpful if the industry leaders put forth some type of corporate guideline for responsible compensation guidelines. Maybe such a thing exists, but of the hundreds of entrepreneurs I know, VC-backed, they certainly haven't heard of such a guideline. Who in the industry isn't doing their homework? Who owns this? Does the entrep? Does the VC? Does the lawyer? Board?
But those are the weird cases. Most things are pretty standard. And your post implied they weren't standard, when in fact, they are. I think options in the industry are granted according to industry norms.
I think your issue is an industry question.
The 90's was one heck of a bull market, where I believe most companies had and still have a compensation formula based upon successful goals and objectives being met, i.e. a bull market, no one thought of good players performing well, but the stock not as the case in a bear market - good players perform but no reward to us investors, at least not short term. I would tend to believe that comp committees didn't ponder what to do if their stock drops a huge amount after a bubble, like how Intel did. I'm guessing, the discord between you and the industry may be because of a lack of industry definition on how to handle equity/comp in post-bubble where the stock plunges.
Now that I've witnessed what happened to many public companies during this long bear market, one issue that I believe is unaddressed in the industry as a whole, is most public companies handed out options to a formula that appears to be the same one used in a bull market as a bear market - I gain this impression because Yahoo reports show options that seem to be granted at x in 2000 and then stepped up to 1x-2x in 2001 as valuations dipped, so it appears a fixed forumula generated more options during the downturn. (I know of many private companies that use such a formula and would bet it applies to public cos.) This may create a potential conflict between the investor and company: by granting more shares (in number, not value) when the stock drops. That Carl, is something I think the industry may want to consider fixing if it makes sense, but it's not company specific, that's for sure. It's an industry thing because of a decade of a bull market.
Regarding your comment on fraud. Fraud is something that can be smelled. Fraud rots. Before we raised our first round three years ago, a friend suggested we raise money from Enron because they were entering comm in a bigger way than any other company according to his friend that raised money through Enron. I asked a couple of questions, and after 5 minutes said, "the sleeze factor seems too high." Wow, looking back it's amazing to think how such a small indicator could have been a leading indicator. That was well before they blew up. I remember before Qwest had some visible issues, the smell was coming up about 6 months prior to it was understood by all of us in the industry. But one thing that truly shocked me was Cisco, which I consider an ethical company, there was talk about one illegal thing in their biz dev. Wow, I was really happy when Cisco figured out what it was, because it's a good company. As far as Intel, I've never smelled anything even close to the smell of fraud. I don't think their culture would permit it. For a company that's so large in size, it's rather impressive.
Is Grove clean? I've never met him, but my instinct says he definitely is, don't you sense that from his interviews? I remember the first time I ever heard of Intel which was (I believe) maybe 1987 after Intel had bumbled a bit on something, and the interviewer asked Grove a question in a gentle way (basically, she gave him a way out, to save face, I think he may have been the technical person in charge or something like that), his response was blunt, something like: we screwed up. Rather shocking words to use on public tv, the interviewer was taken back, so she repeated the same question in a slightly different way, and he got even more blunt and cut himself & Intel up on public tv. Ironically, the announcer was very affended with his honesty (she started getting hostile to him which baffled me.) I remember my Mom said with a twinkle, "he says it like it is." Barrett & Paul O sure seem like honest people too.
I think you're confusing an industry question with a particular company. You could check out the other companies and see how they do their compensation. Anyone that has ever been involved in establishing comp packages, like I have, realizes that it's pretty standard fare across the board. But there could be better representation on comp committees from all ranges to minimize the potential for industry tiering such as we see in other industries, or for sensitiving to common shareholder level. Every industry has industry "sports figures" - but Hollywood & Sports are a lot worse Carl. I believe the only error Intel may have, is sensitivity to folks in this case. At startups, the VP Marketing would be all over the executive team to head things off at the pass, to protect them from doing anything that could unintentionally hurt themselves. I'm not sure why a marketer doesn't guide them to exercise at the first of the month in order to understand the public's reaction before transacting a sale. Then again, maybe it's better if the company continues in its direct and honest approach, even if it is at the risk of hurting people's feelings.
Carl, I tend to think you got rattled by his selling, more than anything else. And who wouldn't during these hard times?
I think INTC is a good buy, am not worried about its future.
Regards,
Amy J |
