changing vote, page-5

tezjim,

I have got something for you to read, and the few rampers that may be interested. If they haven't got some personal interests at stake that is, which is also very possible indeed.

Now read it properly, and take your time in doing so because it makes some very good sense indeed.

I can't remember where I got it from, but when I first read it, I thought that it was worth saving for future references. And today IMHO, it is one of those days worth digging it up, and bringing it out in the open.

Enjoy, and then comment upon it back to me.

I will be glad to hear what you think about it.


"One of the biggest and most damaging fallacies in the market is the idea that issuing options to management aligns their interests with shareholders.

If management holds options in a company, their interests are aligned with mine only to the extent that i also hold options in the company. I.e. their interests as an option-holder are aligned with my interests as an option-holder.

If, on the other hand, i am a shareholder, how are my interests aligned with those of those management who are option-holders? We do not hold the same instruments, do not have the same rights/obligations and therefore do not
have the same interest.

In that instance, management (as option-holders) do not face the same downside risk that i do (as shareholder).

Management has an incentive for taking on excessive risk to meet option hurdles without being subject to the
same possibility of loss that i am subject to.

Management has less incentive to pay out excess capital to me, as doing so makes it harder to meet their hurdles.

In the case of a company generates strong free cash flow, management could simply meet their hurdles by accumulating capital that should otherwise have been paid out to
shareholders.

The only truly fair and transparent way to align managements' interests with shareholders is to allocate a (preferably significant) portion of their annual remuneration to the on-market purchase of stock and then vesting that stock over a (preferably long) period of time. That way, management has skin in the game and shares the same risk/return potential as shareholders. Interests are then aligned and existing shareholders are not
diluted/disadvantaged.

Just because it is common practice for companies to issue management with an endless (and easily replaceable) stream of options, does not mean it is fair, transparent or in the interests of shareholders...

Traditional wisdom is often long on tradition and short on wisdom..."



End of quote...


Now, what do you and the rampers (which more than likely could, IMHO, have interests/skin in this matter), think about it ???

Was it worth my time posting it ?? I wonder !!!

Regards