Instead of using excess cash to buy back stock at a short-term discount, a long list of blue chip companies used the post-Sept. A recent Wall Street Journal article entitled “Executive Pay: The 9/11 Factor,” describes the sequence of events (my emphases):“A Wall Street Journal analysis shows how some companies rushed, amid the post-9/11 stock market decline, to give executives especially valuable options.
A review of Standard & Poor’s Execu Comp data for 1,800 leading companies indicates that from Sept.
I recall reading somewhere that the board is supposed to represent shareholders’ interests, not the CEO’s!
I’ll have more to say about this practice using one of the “poster boy” option abuse companies.
He suspects that it will turn out much worse than what has been exposed in the media thus far (emphasis added): “Erik Lie, a University of Iowa business professor whose work helped fuel regulatory inquiries into backdating, is expected to release fresh research this weekend showing anomalies that suggest a huge cohort of companies may have played games with their options grants.Lie and Randall Heron of Indiana University’s business school, examined almost 40,000 grants during that period.It found evidence of manipulation involving 23% of those grants between 1996-2002, when a new rule required executives to report grants within two business days of receiving them — making backdating far more difficult to achieve.But long-term executive/shareholder interest alignment gets thrown out the window when unforeseen circumstances cause a temporary crash in a company’s stock.
Executives can profit quickly at shareholders’ expense in such instances.But are options really as great for all parties as many have assumed?