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You've got to be kidding me

Companies give stock options -- the option to buy shares of stock in the company at a predetermined price some point at the future -- to executives because, supposedly, it provides an extra insentive for the executive to make the company stronger.

An executive, let's call him Ken, joins a company and it's at $20. He receives an option to buy ten million shares, when he leaves the company, for $10 each.

(First off, this $10 price seems bogus. All he has to do is break even and he makes $100,000,000, but that's how the world works, I guess.)

But, looking at this, Kenny doesn't have an insentive to make the company stronger. His incentive is to make the stock price as high as possible when he leaves. So, if the stock is at $50 on that magical day, and he can buy ten million shares from the company at $10 and then immediately sell them on the market, then he's made $400,000,000. (minus, of course, brokerage fees and capital gains tax)

Kenny Boy, in other words, is paid in a way where the company doesn't matter. The stockholders don't matter. Nothing matters, in terms of his golden pay day, other than the analysts. You know, the people who appear on CNBC during the day. They research the company and give independent advice on where they think the stock price should be. People listen to them, because the analysts are smart, well educated, research the company, are independent, and individual people and managers of smaller funds don't have the time or ability to do all of this research themselves. And the analysts are independent, after all.

And, if this story in the New York Times is true, company executives made decisions on who the analysts of their companies would be. (I'm using the plural here, even though the story is just about Enron. Like a lot of the stories we've been reading about, I'm confident more will follow.)

To get this straight... an executive would receive a great deal of the money (generated by the workers of the company) because it would be transfered to him, essentially, on the say of an analyst who the executive himself picked. You've got to be kidding me.

One likes to believe there aren't enough jails for scum like this. But, realistically, if you have friends in the White House and the Naval Observatory, one has to assume that Ken Lay won't see one minute of jail time. He'll spend his life at his many pools, at his many houses, while actual employees at Enron, whose retirement plans helped to raise the price of the stock, have to work decades longer because their retirement savings are gone.


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This page contains a single entry from the blog posted on July 30, 2002 2:09 AM.

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