A Micron Technology (NASDAQ:MU) employee spouse posted this brief, and poignant comment to a Seeking Alpha article. It captures a whole lot about what has been going on with insider selling at the company:
Long-time Micron employees have seen their stock options come and go over the years, while the stock's price sunk lower and lower. The options, given to them as part of their compensation package, were never worth anything by the time they could be exercised. These folks finally had the opportunity to turn some of their long-time compensation into actual dollars, and did so. Can you blame them? As far as the information I have seen the insiders who have sold MU have retained more than half of their holdings, which indicates that they are not expecting the stock price to drop dramatically in the near future. My husband was a Micron engineer for many years and now works for Intel Micron Flash Technologies. He has a small number of MU stock options. He sold some of them - worth something for the first time ever - in 2013. We are holding onto the rest of his options, as we believe the company is well positioned now and the stock price will continue to rise.
This was posted on January 30th to an article which appeared on that same date. Its one of the worst SA articles I've read on Micron so I've spared you the time reading it by posting the whole comment.
Sharon, this is a great story. But our concern about insider sellers is not about senior engineers like your husband. It is about the directors and officers of the company whose actions with regard to insider sales signal a lot to the market. Their actions with regard to their stock and option holdings probably signal a lot to senior engineers and employees like your husband.
Directors, Officers and 10% holders are required to file a Form3 with the SEC detailing their initial holdings, and a Form4 detailing any updates. These are posted on the company's website and on the SEC EDGAR server in HTML, XML and TXT forms. An individual form is not terribly useful. Downloading a bunch of them allows an examination of trends over time and gives some of the fabric and feel of the incentive stock program, and who is doing what. As detailed in the methodology section at the end of this article, I looked at all the Form4's for the last 13 months.
So what insights can be gleaned through this kind of deep dive into the data? I was curious about who has sold, and how much they've sold. For this article I decided to ignore acquisitions or new grants entirely. But be still your quaking heart Micron stockholders and SA readers; our officers and directors have been getting plenty of new option grants, which I may detail in another article. Here is a summary on what has been sold in the past 13 months:
|FOSTER, RONALD C||1,249,540||19,284,312|
|DURCAN, DERMOT MARK||752,534||10,845,846|
|Deboer, Scott J||714,986||9,548,540|
|SADLER, MICHAEL W||654,575||8,398,381|
|OTTE, PATRICK T||653,441||7,642,231|
|Eby, Thomas T||480,485||6,594,239|
|Thorsen, Steven L. JR||435,267||5,972,583|
|LEWIS, RODERIC W||319,301||4,104,197|
|Rayfield, Michael J||148,399||2,587,158|
|Mondry, Lawrence N||60,000||1,409,940|
|BAILEY, ROBERT L||40,000||494,376|
|Poppen, Joel L||39,317||926,250|
|SWITZ, ROBERT E||30,000||690,795|
|Byrne, Patrick J||10,000||231,175|
And that table raised the question of how much did these sellers leave on the table? Taking their shares sold, and the price at which they were sold, how much would they be worth at the recent price of $23 per share?
|Delta if held to|
|FOSTER, RONALD C||1,249,540||9,455,108|
|OTTE, PATRICK T||653,441||7,386,912|
|Deboer, Scott J||714,986||6,896,138|
|SADLER, MICHAEL W||654,575||6,656,844|
|DURCAN, DERMOT MARK||752,534||6,462,436|
|Eby, Thomas T||480,485||4,456,916|
|Thorsen, Steven L. JR||435,267||4,038,558|
|LEWIS, RODERIC W||319,301||3,239,726|
|Rayfield, Michael J||148,399||826,019|
|BAILEY, ROBERT L||40,000||425,624|
|SWITZ, ROBERT E||30,000||(795)|
|Byrne, Patrick J||10,000||(1,175)|
|Poppen, Joel L||39,317||(21,959)|
|Mondry, Lawrence N||60,000||(29,940)|
I guess we'll give the market timer award to Switz, Byrne, Poppen, and Mondry.
And here's some data on volume of insider sales plotted against the stock price for the same period:
Conclusion: Incentive compensation is broken in the USA. Micron Technology is a poster child of what is broken. For nine of the past ten years, as the lead in comment indicated, this program provided little incentive and didn't align the directors and officers with the shareholders. In the past year, this same group has treated it as their personal Automated Teller Machine, removing a mere $137.5 million, while apparently leaving $76 million on the sidewalk in front of the ATM. Again, during this "ATM phase" the program didn't align the participants with the stockholders.
After a 9 year dry spell and a 1 year rocket launch in the stock price, now is a great time to change the program or scrap it entirely. Here are some ideas:
- Supplement the program with some sort of Restricted Stock Unit program which would be funded out of some measure of discretionary free cash flow. Ron Foster might not have wasted $250 million of the company's money on poorly designed yen hedging, or spent tens of millions issuing and redeeming dilutive convertible bonds, if he was treating the company money as his own.
- Switch away from this major reliance on an option program. Increased cash bonuses would have been far more effective as an incentive program during the lean years. These huge insider sales make it seem like the recipients don't value the stock much as, say, many SA readers. If they don't value holding the stock and we do, slant their pay towards cash bonuses and away from dilutive options where the underlying stock doesn't seem to be held upon option exercise.
- Shift to a much longer vesting period.
Methodology: To extract the information presented in this article, I downloaded 155 Form4's from the SEC EDGAR server in extensible markup language (XML). Having them in XML on my computer makes it easier to summarize and tabulate the data. Of those 155 files appearing from 1/1/2013 to 1/31/2014 here is the breakdown:
- 136 contained some dispositions
- 4 detailed gifts or a transfer pursuant to a divorce. For these transactions no value was recorded on the Form4. I've ignored those in this article.
- 13 were acquisitions only, usually pursuant to director stock plans
- 2 were dated 2013 on the EDGAR server but detailed 2012 transactions
I've read that the SEC's XML computer readable information is a mess. Micron's proves that. There are significant discrepancies between some of the human and machine readable forms. Many of the XML forms don't comply with the SEC's XML schema dictated for these forms-- they are not "reliably" machine readable. They are machine readable only with a lot of rules and some data "massaging". I've had to make judgment calls on some of the data. Your mileage may vary.
Future Explorations: Now that the cumbersome bit of getting the data onto my computer and cleaned up (gifts removed, xml errors parsed, etc.) its somewhat easier to undertake other examinations of the data. Here are those that occurred to me. Let me know what you'd like to see:
- How do sales over this 13 month period relate to holdings?
- who is exercising early with how many shares?