17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock option grants. They were worth about 5 million when granted, based on a standard method of valuing stock options.“At Stryker Corp., a Michigan maker of orthopedic products, onetime stock option committee member John Lillard said he didn’t regret the decision to award options nine days after the attack. 20, 2001, at the bottom of a sharp ‘V’ pattern in the share price.“Mr.
The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999-2003.“Ninety-one companies that didn’t regularly grant stock options in September did so in the first two weeks of trading after the terror attack. ‘If you believe the company is going to do well, and here is an external event that is affecting the market, and you’ve made a decision to reward executives, you go ahead with it,’ Mr. ‘Life goes on.’ …“At Stryker…post-9/11 stock option grants to several executives appear to have been initiated by the chairman and CEO at the time, John W. Brown would ‘periodically tell us if he thought the stock was attractive,’ and then the board would decide whether to award options, said Mr. Besides, he added, no one could have known whether the stock would rebound immediately or continue to slide.“Mr.
I recall reading somewhere that the board is supposed to represent shareholders’ interests, not the CEO’s!
I’ll have more to say about this practice using one of the “poster boy” option abuse companies.
Backdating is perpetrated by “cherry-picking,” after the fact, the lowest points the company stock traded throughout the previous year when calculating the exercise price of option grants.
The exercise price of an option is crucial because it is the price the executive or employee option holder must pay to the company when exercising options in return for newly issued shares.
Lillard, the former member of Stryker’s stock option committee. 11 and say, ‘Gee, how can we take advantage of this? Brown said that for the past 10-12 years, the company, to compensate for a relatively small number of options given to executives, has tried to ‘pick what we think would be the low point of the year.
The stock option “backdating” scandal has implicated several (mostly technology) companies over the past few months.
Afterward, the number of suspicious grants dropped in half. (BRCM), a communications chip company, stands out as one of the best examples of how an excessive option plan can dilute shareholder interests.
The tech bubble of the late 1990s was a time when top-notch engineers and programmers routinely demanded generous stock option packages as inducement to sign on with public companies.
Stock options are promoted by their supporters as the most effective way to align executive and employee interests with those of shareholders.
They are supposed to transform executives from fly-by-night plunderers in the mold of former Tyco or World Com executives into rational leaders who make prudent, long-term-oriented decisions with shareholder capital.