Albert Meyer

Outlandish CEO Pay: How to Fix the Problem

First, the IRS needs to withdraw the provision in the tax code that allows companies to deduct the discount at which they issue stock to employees. For years, companies have maintained that stock-based compensation was not an expense, but they have eagerly taken a huge tax deduction on that account in their tax returns.

Second, cash spent on buying back shares that were issued to employees in lieu of cash compensation should be reported in the operating section of the cash flow statement. If the IRS wants to grant companies a compensation deduction, then base it on these cash outflows. Cash outflows relating to stock repurchases should only be reported as a financing activity, i.e., an allocation of capital, once it has been shown that all dilution caused by stock-based compensation has been mopped up. Executives would have us believe that the stock-based compensation expense, as recognized in the income statement, is a non-cash expense. Cash spent on stock repurchases to combat dilution caused by stock-based compensation betrays this notion, and if properly disclosed as suggested above, would better inform shareholders of the true cost of share-based compensation.

Mutual fund, MIRZX, shuns companies that use stock-based compensation, unless used minimally, i.e., great companies like Telefonica, Nestle, Syngenta, TransCanada, StatOil, Tenaris, Southern Copper... to name a few.

What’s My Payment?

Good article, thanks.

"The $10.5 trillion of mortgage debt will need to be paid down or written off over many years, before the housing market will reach equilibrium again"

Isn't this a little bit extreme? The collateral value of the $10.5 trillion of mortgage debt is $19 trillion, not so?

Total US household net worth is $53 trillion, not so?

Just trying to add another perspective, although there is nothing about your article that should make us proud, but then our government leads the way, not so? A healthcare program will add another $1 trillion to national debt over the next ten years - low-balling the estimate of course. Do they undertsand what the word "immoral" means.

The war was supposed to cost $80 billion... $908 billion and counting. This makes household debt fade into insignificance.

costofwar.com/

Does the Administration Care About Executive Compensation?

captainccs: "If you don't like exorbitant executive pay, bonuses and stock options just don't buy shares of the offending company. With enough like minded people the stock options will become worthless. :)"

Exactly!... MIRZX is a mutual fund that avoids companies that use and abuse options: SYT, TEVA, CHL, TEF, TRP, EXP, ACH, STO, PCU, SFL top 10 holdings - 37% of portfolio. Portfolio turnover 3%

If govt. really cared about exec comp they would remove the tax deduction for the notional value of stock issued to employees, i.e., the discount at which stock issued to employees. The Norwegian company described employee stock options as a criminal activity.

Schadenfreude: Finally, Countrywide's CEO Getting What He Deserves

The stooges in government must love these comments.

Grab one miscreant, string him up in public and everyone forgets that there are a thousand others, but they don't need to be prosecuted, because the public is happy with one or two scapegoats. The scapegoats are the ones that weren't educated at an Ivy League school, the Kozloswkis, Ebbers (Canadian) and Mozilos (Skilling was the exception, because he challenged the system.)

The problem is endemic and driven by stock options, but so much of stock option gains find their way back to the lobbyists and ultimately into the pockets of Congress, so no major reforms will be done. The strategy is simple: Just throw a few bodies at the public and they are as happy as a dog with a bone.

Don’t get conned by the SEC’s grandstanding. We want 50 indictments and then we’ll be satisfied. Until then we need to throw every incumbent out of office, regardless of party affiliation. Also, don't invest in companies that use stock options (warrants is the correct term) unless on a very small scale.

How Will Payday Lenders Be Affected by New Bill in Congress?

I sent your excellent analysis to Senator Durbin.

How the U.S. Banking System Was Madoffed by the FASB

7) Change the tax code code to get rid of stock-based compensation as a tax deduction for corporations. No such deduction in Canada and other countries

8) In financial statements, expense the intrinsic value of stock options (as it is currently done for tax purposes), i.e., trash Black-Scholes for option accounting

9) Lower corporate tax rate to 25%. China's corporate tax rate is 25% - a communist country; oh, the irony...



On Mar 13 09:32 AM petyaczar wrote:

> Sarbanes Oaxley begat Mark to Market in response to Enron.
> The U.S. Congress begat Enron when they deregulated essential gas
> and electricity and opened it up to speculators.
> The politicians are the handmaidens of FASB 157
> The Politicians are the root cause of this accounting crisis (FASB
> 157) that created a financial panic and the subsequent credit squeeze.
>
>
> At its core, Mark to Market requires someone who has no interest
> in selling a performing asset (A willing owner and jence an unwilling
> seller) to discount said asset to the point at which an unwilling
> disinterested party (buyer) MIGHT become interested.
>
> THIS IS BEYOND STUPID.
>
> Kill Mark to Market and FASB 157, drive a stake thru its heart, cut
> off its head,burn the corpus delecti.
> The politicians have used Mark to Market to pull off a Coup de Tat
> and destroy the capitalist free market system.
>
> The politicians are using this "crisis" to expand government power
> as they bring America into a socialist state.
>
> Never allow politicians to mess with the accounting system, else
> before you know it 2+2 is redefined as equaling 1.3 - or some such.
>
>
> Never confuse accounting with reality.
>
> Solve the root cause of this problem and the economy will be restored
> as the financial system is restored and markets will soar as credit
> begins to flow when confidence in balance sheets is restored
>
> 1)Get rid of Sarbanes Oaxley = Mark to Market
> 2)Get rid of FASB 157
> 3)Reinstate Glass Steagall Act
> 4)Reinstate the uptick rule on short sales
> 5)Increase margin on commodity futures trading to 50%
> 6)Make it illegsal for politicians to mess with the accounting system.
>
>
> IMO

Mark-to-Market Triggered This Recession; It Will Also Trigger the Recovery

If mark-to-market is such a great thing, why doesn't FASB mandate that stock options (warrants actually) be marked to their intrinsic values every quarter instead of using models that are utterly flawed? Because that way, shareholders would learn on a timely basis how much money executives are stealing from shareholders.

At least, on exercise of options (warrants), the intrinsic values should be compared to the values that were accrued at grant date and the numbers should be trued-up to correct the accruals. That's what we do with valuation allowances and other such estimates. But ah, stock options (warrants) are the executives’ pet scam and we are not going to bite the hand that feeds us. FASB is in cahoots with the “scamsters.” The "F" is FASB stands for "fraud." OK, a bit harsh, but I hope you get the point.

FASB is inconsistent and politically compromised, hence these glaring contradictions. You can't mark assets to market when no market exists. (A market for employee options exists. Telefonica buys call options to cover the option grants they make to employees. Consequently, they accurately account for the cost of options and also avoid shareholder dilution. The best of both worlds with the compliments of the Spaniards – shame on us.) I think FASB misjudged the doomsday devise they concocted and then their pride would not allow them to back down.

How the U.S. Banking System Was Madoffed by the FASB

If mark-to-market is such a great thing, why doesn't FASB mandate that stock options (warrants actually) be marked to their intrinsic values every quarter instead of using models that are utterly flawed? Because that way, shareholders would learn on a timely basis how much money executives are stealing from shareholders.

At least, on exercise of options (warrants), the intrinsic values should be compared to the values that were accrued at grant date and the numbers should be trued-up to correct the accruals. That's what we do with valuation allowances and other such estimates. But ah, stock options (warrants) are the executives’ pet scam and we are not going to bite the hand that feeds us. FASB is in cahoots with the “scamsters.” The "F" is FASB stands for "fraud." OK, a bit harsh, but I hope you get the point.

FASB is inconsistent and politically compromised, hence these glaring contradictions. You can't mark assets to market when no market exists. (A market for employee options exists. Telefonica buys call options to cover the option grants they make to employees. Consequently, they accurately account for the cost of options and also avoid shareholder dilution. The best of both worlds with the compliments of the Spaniards – shame on us.) I think FASB misjudged the doomsday devise they concocted and then their pride would not allow them to back down.

Bank Insiders Made Out Like Bandits

On the contrary, this article is extremely worthwhile. It highlights the dangers of investing in companies that make use of stock options to compensate executives. Far from aligning the interests of insiders and shareholders, employee stock options place insiders at a huge advantage over shareholders.

Stock option plans are front-running, stock-watering and insider trading all wrapped-up in one and legitimized by the guardians of our capital markets.

Millions of Americans are foolishly placing their retirement funds in index funds, ETFs and the like. Managers of these funds are "forced" to invest in these stock option disasters. Hundreds of millions of dollars of hard-earned wages are deftly transferred from the middle-class to a handful of executives.

This inequitable wealth-distribution (legitimized theft) is bad for the social fabric. It’s a stain on our capital markets. Articles like this educate the public. Hopefully one day, legislators and regulators with a conscience will step in and remedy the situation.

Bank Insiders Made Out Like Bandits

This insider trading, mainly at the expense of people who blissfully place their retirement hopes in index funds, is fully sanctioned by the SEC, the so-called guardians of capital markets. The SEC's defense would be that all the facts are disclosed. It's like saying that robbing a bank is no longer a crime because we have installed closed-circuit TV to record the action.

Bank Insiders Made Out Like Bandits

Great analysis. Much appreciated. How about a similar analysis for companies like Cisco and Broadcom?

Bank Executive Compensation and the Bailout

The Norwegian government considers stock options a criminal activity. The German government wants to clamp down on stock options. Avoid companies that use options to transfer wealth from shareholders to insiders. Pity Countrywide is not on the list - stock option abuse at its very worst. Respected mutual funds owned loads of Countrywide. American workers, trying to provide for their retirement, entrusted their hard-earned wages to these managers, who in turn thought they were investing in Countrywide. In fact, they were bailing out management, who were offloading their stock, took the money and ran, right under the eyes of the SEC and our lawmakers.