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Thomas Paul Murphy

Thursday, March 8, 2012

Stock Options need to be abolished 03 08 2012

Background as to decision:
Stock options are the choice form of compensation to corporate executives.  A stock option gives the employee of a company the right to buy a stock at a specified price that is often lower than the market.

If a corporation wants to grant an employee compensation in the form of cash it should be done in the form of stock bought in the marketplace and given to the employee in the form of compensation.  Why does this represent what the spirit of the law should be in corporate America?  Because if a company is truly doing well and the employee contributed to it then it would have no problem buying its own stock and giving it to the employee.

What is the current status of stock options as compensation?  They are one of the most destructive forces in the erosion of shareholder value.  Why?  Becuase they dilute shareholder value and limit share price growth.  In effect they are a way for Corporations to scalp the true owners of companies from benefiting from growth.

Look at it this way.  A company could in effect grow for ten years straight each year and issue enough stock options to dilute earnings per share so taht there was no growth on the income statement.  At the end of ten years the company faces an economic crisis and all shareholders go bankrupt. Who made out good?  The employees who recognized the growth and were issued options and sold them.  The true owners who put hard earned and worked for American Capital on the line got nothing for their investment as America was bilked. 

Stock Options are indeed one of the ways our corporate structure in capitalism has defeated Americans values and rights.

The true to form spirit of what the law should be in America is that compensation should be commensurate with growth.  This indeed spurs the next question?  How can one single shareholder limit the pay of the big shareholders who are also in managment?  It is very simple if a corporation is majority owned by the few then whatever salary those shareholder employees make above a national standard should also be recomputed so that all shareholders recieve a similiar pay check.  In other words the majority owner can not declare that his salary is to be calculated based on one hundred percent of net income for a year.  This would prevent such managers from bilking shareholders of money and would indeed conform to the spirit of what capitilism should be.

Thomas Paul Murphy
Copyright 2012 Thomas Paul Murphy

Originally published on 03 08 2012 at:

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