Some investors are refusing to play with companies that grant
options. After all, what better way to avoid the potential prob-
lems of options than to avoid companies that grant options?
We all know how much Warren Buffet, CEO of Berkshire
Hathaway, hates options. Other companies, like the invest-
ment-advisory firm Bastiat Capital, also avoid companies that
grant options because they want to avoid the stuff that goes
with it—difficult accounting, dilution, and of course backdat-
Instead, Bastiat chooses to focus on companies like
CompuCredit, who not only have stopped issuing options,
but provide a thoughtful and detailed explanation of their
compensation philosophy in general.
With stock options, of course, came a whole new fun lan-
guage. While we all agree that the main reason for granting
options was to get managers and shareholders on the same
page, I doubt even industry gurus suspected that stock options
would have such a huge impact on our vocabulary.
For example, we bandy about the word “backdating” like
we’ve been using it for centuries. As a matter of fact, you
would have to live in a cave not to know what it means. Okay,
for those of you who do live in a cave, backdating is the prac-
tice—widespread at times—of manipulating the dates of stock
options grants to coincide with low points in their value.
Chances are you know what backdating is because lots of com-
panies have done it—Monster Worldwide Inc., Apple
Computer, Comverse Technology, Affiliated Computer
Systems, Brocade Communications Systems. And those are
just a few that come to mind. Leave it to executives to come
up with yet another innovative way to max out their pay. Is
backdating illegal? Nope. But it’s not very nice either.
Shareholders don’t take it well when they find out their highly
paid executives are spending their time finding accounting
loopholes that allow them to take lots and lots of money from
the company cash flow—while shareholders pay the price.
EFFECTIVE EXECUTIVE COMPENSATION