Stock Options!

Saw a TV program today that left me a bit hot under the collar. It seems that big companies have created a "monster". They have been rewarding their exec's with stock options. In return the exec's use them to cheaply purchase shares which they then sell on the market.
The companies don't want this flood of shares to deflate their share price, so the company buys them back. Cost to companies $100's of millions/year.
Interesting comment on program was that the extreme amount of wealth created by this scheme would ensure that many generations of the exec's family would never have to work.
Comment by one CEO was that they had to offer Options to attract execs.
Seems to me that exec's would have to work somewhere, and why reward them with obscene amounts of money.
At the end of the day, its the shareholders who are the losers!

Here is something that the Motely Fool sent me!

By Bill Mann
August 21, 2002


Seventy-four percent.

That, according to Standard & Poor's, is how much Intel's (Nasdaq: INTC) 2001 reported earnings would be reduced, if stock options were accounted as an expense. That's an enormous amount for a big company that, frankly, doesn't grow like it once did. Check that. It's a huge amount for any company. Flip it over, and it seems worse -- Intel's earnings are overstated by almost 300%. Yowza.

Intel's earnings multiple would be unbelievably high as a result of these economic adjustments. The company's 2001 earnings would've been reduced from $1.29 billion to $334 million. At today's market capitalization of $124 billion, that translates into an adjusted P/E of 371. Even using non-core, GAAP earnings, Intel sports a P/E (using current, not 2001 earnings) above 65. This for a company with essentially flat sales in 2001, from its sales five years previous. This from a company that's exhausted many of its best margin-generating markets. Intel doesn't have a sufficient margin of safety at these price levels. And given its opposition to stock option accounting, I don't want to believe it.


It's enough to make you sick....

Dan