Coalition of the Greedy
By Whitney Tilson
gave its employees
stock options, worth
(after taxes), yet
this enormous and very real (though not cash) expense does not appear as a compensation expense in Intel's
financial statements. Instead, it's buried deep in the footnotes of the 10-K. Were it to appear on the income
statement, reported net income last year would have been 16% lower and the stock's trailing P/E ratio today would
be 38.6 rather than 32.2.
Craig Barrett, Intel's CEO, in addition to his salary of $610,000 and a bonus of $1.5 million, received 1.35 million
options in 2003 (131% more than the previous year), worth an estimated $14.4 million.
Knowing all of this, I'll give you three guesses where Mr. Barrett comes down on the issue of expensing stock
I'm sure you're shocked -- SHOCKED! -- to hear that he wants to maintain the fiction that options have no cost. As
long as this remains the case, boards of directors are likely to continue doling them out to CEOs by the bushel. In
addition, by reducing reported compensation expenses due to paying employees with options, companies inflate
their earnings, free cash flow, return on equity, and so forth, which inflates their stock price and -- voila! -- CEOs
can cash in their bushels of options at even higher prices. What a win-win (for them, anyway) situation!
Mr. Barrett and, sadly, many other similarly situated CEOs have banded together to fiercely defend the stock
option gravy train because, in my opinion, they're just plain old selfish. That's why I've nicknamed them the
Coalition of the Greedy. Barrett's options package isn't even that egregious relative to the option pigs in Silicon