Every time I think I'm out
they pull me back in again.
I apologize - for those sick of this subject, click on next. For those who want to slam me, have fun. If anyone actually wants to discuss the substance of my points and discuss any of the issues with me, please do it by PM or e-mail.
Speaking for myself only, my problem with the options are as follows, based on these two facts.
The cost of the option is borne not by the company, but by the shareholders directly.
Exact valuation of options is impossible.
The use of options allows for high value assets being transferred while some see them as having little or no value. Therefore, the value of compensation of those receiving options is never clearly known. Lack of clarity is not good.
Why did options become so widespread? It allowed companies with severe cash flow issues to operate while conserving cash. THIS IS NOT AN ISSUE AT IDCC. As one who thinks that IDCC is severely undervalued and will be in an extremely strong cash position, I would rather pay any expense (employee or otherwise) with cash rather than stock or options.
The natural response is yeah, but how are you going to keep the good employees? Well, if we offered them cash incentives, say $10. instead of one option, then I believe they would jump at the cash. Many employees in this post bubble era actually prefer cash. Prudent and reasonable use of options to hire and retain talented people is a necessary part of business. Being careful and conservative with them is part of running a business well.
Ah, but this does not align the employees with investors. Well, if the incentives are production related I think that is better anyway. Let's say there are two companies that have identical results and expectations. One sells at 40 and the other at 20. This could be due to institutional interest, one company is sexier than the other, a big name CEO, whatever. Two years down the line both companies have put up strong results and good growth. They are still identical, but both are now selling at $30 per share. The employees at both companies were equally productive, yet one group gets big option payouts and the other doesn't. Why should one group be rewarded for working for an undervalued company while the other group gets punished for working for an overvalued company?
Investors invest because they want to take risks and they believe a company is undervalued. Employees work for a company because they need or like the work. Employees may or may not want to invest. When they get options that are worth far more than they could get in cash, hell yes they want them.
What using cash avoids is putting the compensation level more at the whims of the overall economy and market, which is what happens with fixed price options. Having production incentives rewards (or doesn't) people based on their work and not outside factors that they cannot control.
YES, executive compensation is a big issue to me.
YES, dilution is a big issue to me.
YES, I am greedy - I don't want to give away money because I made a good investment. No employees sent me anything when I made bad investment, nor should they.
NO, I do not want to micro manage the company. I will assert my rights (vote my proxy based on my opinion of the issue, not as a rubber stamp) and be vocal about two issues where management and investors have opposing interests, which are management compensation and communications.
Lastly, please, please, please anyone who wants to tell me that a 10 year option at market price has no or little value, let me give you some free money. I will pay you $10 a share for a 5 year option. Like IDCC, not only will you get the $10, you will also collect the ~$25 per share strike price! Such a deal. Act soon before I come to my senses.
For those unwilling to take me up on my offer, please do not continue to state how options cost us (shareholders) nothing.
