BSW, one of the items from your referenced post that you did not hilite related to the reason for more available options:
"...and encourage and facilitate employee and director stock ownership, thereby promoting interest in the welfare of the Company by allowing employees and directors to share in the success of the Company and encouraging them to remain in the service of the Company."
The one thing that is destined to occur with the issuance of a never ending supply of options is not stock ownership by employees and directors, it is it guarantees SELLING by these individuals. I would love to see a study about what percentage of stock given to employees in these option plans that is still owned by the rank and file 5 years after the exercise price has been exceeded, or even just 1 year after the price has been exceeded. Employees lock in their gains by selling when the price is exceeded to get cash out, especially when they know more are coming next year, and the year after that etc. If there was a limit, there would be more long term ownership, and more incentive to increase the long term stock price, not just occasional blips to allow selling by the insiders.
I don't care who you compare IDCC to, the fact remains that almost all companies during the late 90's up till today have been overcompensating its management with the illusion of a free ride called stock options. Just because it has been happening for the past 5-10 years does not make it right. At some point we need to close the spigot. We need to make a stand today. The salaries during the 90's and early 00's are obscene when compared to earlier decades. The pace of compensation inflation at the management level during this time span exceeded the pace of inflation by many, many times. Is the average investor (or the average employee for that matter) over this time span that much better off today than they were in 1995 as a result of these obscene pay increases for management?
As far as your reasoning related to the change the will be occurring because of FASB expensing options, that change will only have an impact when the options are actually issued. So I guess under your reasoning, we should issue all these shares before we are forced to show them as an expense. The fact that if this is done, even if I where wearing your rose colored glasses, I would still have to see that kind of compensation as obscene. Future rule changes by FASB should in no way impact our decision today about stock options, especially when your reasoning is flawed. After the rule change, we can increase the number of options available for grant by a factor of 10 and there would be not change to the current rules. The change will occur only when they are actually given to the employees.
Management has told us that they do not intend on increasing its staffing levels this year but you refuse to accept this in your reasoning. Therefore if we are to believe management that they do not intend on increasing its staffing levels, then currently available options of 4.5 million are more than enough to satisfy the existing employees plus the normal turnover that occurs in any company. This level of available options is not only enough for the next year but the next 3-5 years based on a reasonable dilution rate.
Your point about IDCC being in the growth phase right now and that is why we need to increase options and comparing them to the other companies during their growth phase is comparing apples and oranges. The simple fact is that these other companies during their growth phase did not have the prospects that IDCC has of generating cash flow in excess of $8/per share from operations. These other companies needed to generate cash from issuing more stock in order to grow. As management has stated, the cash flow expectation is on the conservative side so you can expect them to achieve more like $10-12/share in the next 12 months after you factor in more licensees that were not in management's projections. If they are not able to get more licensees and their cash flow projections fall way short, then that is just another reason they don't need any more options or even cash bonuses. So comparing a company that wants to grow and needs capital/cash to IDCC who at the end of this year, if management is correct in their projections, will have over $500 million in cash with no debt is ludicrous.
Acquiring a new company will result in the use of cash or the issuance of stock, but not the issuance of options. If there is such an acquisition and management does not have enough options in the ISO plan at the time of acquisition, they can structure it in such a way as to compensate the employees of the company to be acquired. We do not need to hand over to management a blank check for its ISO plan. By its very definition it is an incentive stock option plan for its employees, not for future acquisitions.
Management has shown us they do not utilize ISO's prudently. From your earlier post you showed the average shares outstanding for the past decade. One thing that jumps out to me is the fact that after the Motorola debacle, the shares/options did not increase substantially. The pace of increase only occurred after the stock orgy that occurred on wall street during 99-01. So to say that the options were to retain key people after Motorola is a pure excuse not supported by the number of options granted during that time period.
I hope Warren Buffet has a positive impact on publicly traded companies over the next several years in curbing the excessive use of options and the excessive pay handed out by the truckload to publicly traded companies management. In order for our market to regain its firm foundation it will need to go back to earlier measurements and compensation levels. I am not saying to pay management the same pay rates that were in effect in the early 90's but increases at reasonable rates more like the average workers pay increases.
Buffet gets paid only a nominal salary of about $300,000 because he knows that his true reward will come only if his stock appreciates in value. If management would stop selling and instead receive their rewards when the stock increases all would be better off. Pay them reasonable cash compensation and stop the option gravy train.
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