Lest We Forget: Looking out for number one - stock option games post 9/11

[c1ue]

As if it wasn't already abundantly clear how screwed up corporate governance is...

Oh and look, its Nardelli again.

http://bigpicture.typepad.com/commen...1_option_.html

The WSJ continues its recent habit of burying killer stories in the under read Saturday edition. This week's bombshell has to do with post 9/11 earnings grants:

"On Sept. 21, 2001, rescuers dug through the smoldering remains of the World Trade Center. Across town, families buried two firefighters found a week earlier. At Fort Drum, on the edge of New York's Adirondacks, soldiers readied for deployment halfway across the world.

Boards of directors of scores of American companies were also busy that day. They handed out millions of bargain-priced stock options to their top executives.
The terrorist attack shut the U.S. stock market for days. When it reopened Sept. 17, stocks skidded more than 14% over five days, in the worst full week for the Dow Jones Industrial Average since Germany invaded France in May 1940. But for recipients of options, the lower their company's stock price when options are awarded the better, since the options grant a right to buy shares at that price for years to come. The grants set recipients up for millions of dollars in profit if the shares recovered.

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 ExecuComp data for 1,800 leading companies indicates that from Sept. 17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock-option grants. 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 and 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. Their grants were concentrated around Sept. 21, when the market reached its post-attack low. They were worth about $325 million when granted, based on a standard method of valuing stock options."

What makes this so pathetic is that corporate executives could have stepped up AND BOUGHT STOCKS IN THE OPEN MARKET if they believed they were so cheap. It would have been reassuring to a nation to see the leaders of industry voting with their own dollars. It might have made the subsequent economic slow down and period of tense aftermath less painful.>

Instead, these weasels decided to loot the treasury at the first opportunity. America was smouldering, the WTC lay in ruins, and this group of classless pigs decided it was time to pocket some cash.
>
The Cream of American Corporate "Patriots"


Graphic courtesy of WSJ

I'm going to take it a step further: These assclown executives are unAmerican. They are not Patriots, they are not model citizens -- they are merely a pathetic group of opportunistic whores who might as well hang outside the Holland Tunnel looking for a quick buck (although that would involve risk and work, something they have shown a distinct aversion to).

In 1929, when the stock market crashed, JP Morgan (and others) stepped in. They bought stock with their own dollars, they saved Wall Street. Oh, and they were rewarded for it -- both monetarily, and in the history books.

What the more recent group of execs did is probably legal. It certainly isn't ethical, and it reveals them to be "lacking in moral turpitude rectitude." I wonder if there's a morals clause in any of their employment contracts.

What a pathetic group of weasels. Brain cancer is too good for these shitheads. They -- and their lapdog Boards of Directors -- should all be fired.

[dcarrigg]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

As if it wasn't already abundantly clear how screwed up corporate governance is...

Oh and look, its Nardelli again.

http://bigpicture.typepad.com/commen...1_option_.html

How could anyone drive multiple fortune 500 companies into the ground, raid them for hundreds of millions, profit off of Sept. 11th in a dirty way, get named the worst CEO of all time by even CNBC, then still make millions for running big companies?

Who would hire him if the game weren't rigged?

Work hard, make smart decisions and you can do anything, or so they tell you.

This guy has done everything wrong and still everything is handed to him. It's shameful.

[thriftyandboringinohio]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

I don't see this as bad at all.
Seriously.
The stated purpose of granting stock options is to give managers an incentive to stick with the company and work hard to raise the stock price for the owners.

September 21, 2001, after stock prices tanked seems exactly the best time to do it.

It can be painted as some kind of grave robbing, but I'm willing to defend it as rational and right.

[Milton Kuo]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

I don't see this as bad at all.
Seriously.
The stated purpose of granting stock options is to give managers an incentive to stick with the company and work hard to raise the stock price for the owners.

September 21, 2001, after stock prices tanked seems exactly the best time to do it.

It can be painted as some kind of grave robbing, but I'm willing to defend it as rational and right.

You might want to look at the strike prices of the options given to management: I think you might change your mind. The options given to management are an entirely different beast from the options given to rank and file workers, if the rank and file are even granted options.

I'm of the opinion that if options are granted to executives, they should be granted at a strike price that is well out-of-the-money and should not be exercisable for five years or more, to prevent short-term tricks to gun the stock price. As it currently stands, management will only not make money if it, for all intents and purposes, destroys the company. A slightly lower or stagnant stock price still results in a massive payout.

[c1ue]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

I don't see this as bad at all.
Seriously.
The stated purpose of granting stock options is to give managers an incentive to stick with the company and work hard to raise the stock price for the owners.

September 21, 2001, after stock prices tanked seems exactly the best time to do it.

It can be painted as some kind of grave robbing, but I'm willing to defend it as rational and right.

If you buy into the meme that stock options make executives work harder, do you also buy into the counter-meme that stock options incentivize executives to maximize their personal gain at the expense of long term shareholders as well as the long term interests of the company?

For that matter, how many of these executives are still with those companies - a mere decade later?

Home Depot passed out 1 million options to Nardelli.

Today HD has about 1.56 billion shares outstanding. Assuming the number of shares today is similar to 2001, HD's board decided to dilute the entire stockholder base of HD by 0.06% on the basis of 'incentivizing' Nardelli - who not only is no longer at HD but has traipsed through at least 3 different companies since then.

Note the 1 million shares was all on top of whatever Nardelli already had.

Ditto Stan "the man": At the time of Merrill Lynch's acquisition in 2008, there were 1.52 billion shares outstanding. The 2001 option grant gave O'Neal 0.05%of the entire company based on the above shares outstanding number, and this grant was also on top of whatever he already had.

As a reward he ran Merrill Lynch so far into the ground it had to be sold at a price even lower than the post 9/11 option grant price. The lowest price MER hit in 2001 was $33.50: http://www.ml.com/annualmeetingmater...002-annual.pdf

[thriftyandboringinohio]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

You might want to look at the strike prices of the options given to management: I think you might change your mind. The options given to management are an entirely different beast from the options given to rank and file workers, if the rank and file are even granted options.

I'm of the opinion that if options are granted to executives, they should be granted at a strike price that is well out-of-the-money and should not be exercisable for five years or more, to prevent short-term tricks to gun the stock price. As it currently stands, management will only not make money if it, for all intents and purposes, destroys the company. A slightly lower or stagnant stock price still results in a massive payout.

Thanks for that perspective.

The strike prices are not mentioned above or in the link, the article seem focused only on the fact that options were granted at all during the dip, which is the point of my comment. The things you mention could be true (and would be rotten), but they aren't shown. If these options were short-fused and low-priced, well, I'm willing to change my position if I see new evidence. There is no practical way I can check the strike prices or exercise dates for these transactions.

Last time I was given stock options in a publicly traded company as part of my compensation as a rank-and-file middle manager, they were timed 1/3 short (a year from grant, as I recall) 1/3 medium (3 to 5 years out, again as I recall) and 1/3 long term (exercisable after 10 years).

[thriftyandboringinohio]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

If you buy into the meme that stock options make executives work harder, do you also buy into the counter-meme that stock options incentivize executives to maximize their personal gain at the expense of long term shareholders as well as the long term interests of the company?

For that matter, how many of these executives are still with those companies - a mere decade later?

Home Depot passed out 1 million options to Nardelli.

Today HD has about 1.56 billion shares outstanding. Assuming the number of shares today is similar to 2001, HD's board decided to dilute the entire stockholder base of HD by 0.06% on the basis of 'incentivizing' Nardelli - who not only is no longer at HD but has traipsed through at least 3 different companies since then.

Note the 1 million shares was all on top of whatever Nardelli already had.

Ditto Stan "the man": At the time of Merrill Lynch's acquisition in 2008, there were 1.52 billion shares outstanding. The 2001 option grant gave O'Neal 0.05%of the entire company based on the above shares outstanding number, and this grant was also on top of whatever he already had.

As a reward he ran Merrill Lynch so far into the ground it had to be sold at a price even lower than the post 9/11 option grant price. The lowest price MER hit in 2001 was $33.50: http://www.ml.com/annualmeetingmater...002-annual.pdf

Oh I'm the last person to defend scoundrel CEOs as a group.

But even though it's true that scoundrel CEOs are paid handsomely, by both paychecks and stock options, it does not necessarily follow that paychecks are fundamentally bad or that stock options are fundamentally bad.

[flintlock]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

I am in agreement that these options may stink but its still the companies right to hand them out. That said, Nardelli has to be one of the most overpaid CEOs in history. He ruined Home Depot almost single handedly. There simply is no oversight by the boards anymore. That is the real problem. The incestuous relationships between directors of major companies today.

[thriftyandboringinohio]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

...There simply is no oversight by the boards anymore. That is the real problem. The incestuous relationships between directors of major companies today.

Board of Directors (noun) 1. A stack of compliant cronies selected by the CEO for the purpose of sharing lunch once each calendar quarter. See also "rubber stamp"

[flintlock]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

I guess at some point its our own fault since we keep turnimg over our hard earned money for them to pilfer. Its like handing over your Porsche keys to your 16 year old and then complaining about the speeding tickets. But then what other options have they left us with?

[thriftyandboringinohio]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

I guess at some point its our own fault since we keep turnimg over our hard earned money for them to pilfer. Its like handing over your Porsche keys to your 16 year old and then complaining about the speeding tickets. But then what other options have they left us with?

As I recall, you own and operate your own business and invest in yourself.
That's one really great option.

Our current 401K deposits are stuck in the stock market (no other options on our workplace menus), but the rest of our assets are in other things -gold, cash, private investment in a local business...

Most of us can get away to some degree with some effort.

[dcarrigg]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

I am in agreement that these options may stink but its still the companies right to hand them out. That said, Nardelli has to be one of the most overpaid CEOs in history. He ruined Home Depot almost single handedly. There simply is no oversight by the boards anymore. That is the real problem. The incestuous relationships between directors of major companies today.

As I recall, he got Home Depot as a consolation prize for not getting the top spot at GE (they shared a common board member). There's what's wrong with the system in a nutshell. It's not just that there's no oversight of the boards, they're also incestuous.

[c1ue]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

Oh I'm the last person to defend scoundrel CEOs as a group.

But even though it's true that scoundrel CEOs are paid handsomely, by both paychecks and stock options, it does not necessarily follow that paychecks are fundamentally bad or that stock options are fundamentally bad.

These statements I agree with completely: CEOs are not necessarily always overpaid. Stock options are not necessarily fundamentally bad.

However, the post 9/11 grants - particularly the ones noted in the article - clearly fall into the bad/bad category.

[lektrode]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

this has been a very enlightening series of post/opinions - as usual, you guys present more factual insight in a single thread than any month of reading/listening the lamestream media...

only question i have re nardelli: what _does_ he know (about whom) that keeps him on the receiving end of this kind of money?

and it would seem that the entire system of corporate governance is indicted on this one example...

[Milton Kuo]

Re: Lest We Forget: Looking out for number one - stock option games post 9/11

this has been a very enlightening series of post/opinions - as usual, you guys present more factual insight in a single thread than any month of reading/listening the lamestream media...

only question i have re nardelli: what _does_ he know (about whom) that keeps him on the receiving end of this kind of money?

and it would seem that the entire system of corporate governance is indicted on this one example...

It looks like Nardelli is now managing companies taken over by private equity. I can only guess at why he is still able to find work. Many private equity firms use LBOs to take control of a company, strip the company of its assets, load the company up with debt, and use the debt to pay the private equity firm a massive dividend. After destroying the company in such a fashion, the private equity company floats the shares to the suckers through an IPO. Nardelli's background and experience provide a reasonable cover that "good" management is being installed in a company. Also, he is reliable in that is known that he'll "properly manage" the company to "maximize value."

Regarding the private equity M.O. describe above, you might want to look into the histories of Serta, Sealy, Hertz, and recently, Dunkin' Brands. This is just a subset of companies taken over by private equity firms and it's from memory so I could be wrong. I'd be surprised if any of these companies survives Poom.

Nardelli is not one particularly bad egg that causes many to indict all management. He's one of many and perhaps one of the more egregious examples of bad management being grossly overpaid.

By the way, speaking of Nardelli and Home Depot: none other than Angelo Mozilo, of Countrywide Financial, was on the Home Depot board of directors during Nardelli's term as CEO. Mozilo was also on Home Depot's compensation committee.