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17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock option grants. They were worth about 5 million when granted, based on a standard method of valuing stock options.“At Stryker Corp., a Michigan maker of orthopedic products, onetime stock option committee member John Lillard said he didn’t regret the decision to award options nine days after the attack. 20, 2001, at the bottom of a sharp ‘V’ pattern in the share price.“Mr.
The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999-2003.“Ninety-one companies that didn’t regularly grant stock options in September did so in the first two weeks of trading after the terror attack. ‘If you believe the company is going to do well, and here is an external event that is affecting the market, and you’ve made a decision to reward executives, you go ahead with it,’ Mr. ‘Life goes on.’ …“At Stryker…post-9/11 stock option grants to several executives appear to have been initiated by the chairman and CEO at the time, John W. Brown would ‘periodically tell us if he thought the stock was attractive,’ and then the board would decide whether to award options, said Mr. Besides, he added, no one could have known whether the stock would rebound immediately or continue to slide.“Mr.
20 to recommend they choose that day to grant options.
He added that he couldn’t remember a time when the board didn’t follow his advice.”So both the CEO and compensation committee are clearly in favor of giving Stryker shareholders as little cash as possible for each option granted to the CEO.
Afterward, the number of suspicious grants dropped in half. (BRCM), a communications chip company, stands out as one of the best examples of how an excessive option plan can dilute shareholder interests.
The tech bubble of the late 1990s was a time when top-notch engineers and programmers routinely demanded generous stock option packages as inducement to sign on with public companies.
But long-term executive/shareholder interest alignment gets thrown out the window when unforeseen circumstances cause a temporary crash in a company’s stock.
The CEO’s conflict of interest between short-term personal wealth maximization and long-term shareholder interests tends to tilt in the shareholders’ favor.
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This fact is often used as a reason to downplay the seriousness of the issue.
You’d think that shareholders wouldn’t tolerate the use of accounting sleight of hand to compensate executives while bypassing the traditional “selling, general, and administrative” line in the income statement.