King Rat (gkr) wrote,
King Rat

Stock Option Plans

In a story in today's New York Times, Floyd Norris reported that TIAA-CREF, a large institutional investor proposed that Mentor Graphics' stock options plans be approved by the shareholders in the future. The proposal was passed by the shareholders. This means that in the future, all of Mentor Graphics' stock option plans will need to be put to the shareholders for a vote.

Surprisingly, this is not something that is normal. The management of a company may grant to themselves as many stock options as they want, without approval by the shareholders. For those of you who aren't business news junkies like I am, this means that the people who run the company have carte blanche to assume ownership of the company. In the case of Mentor Graphics, the people who ran the company gave themselves about 7% of the company each year. This is all legal, because the SEC said that option plans were compensation matters requiring no shareholder approval. In other words, as an owner, I have no say in how to compensate the people who run my company. Thankfully, the SEC seems to be reversing that view.

I work for a large Internet company that sells travel. Some of you may know it. It shall remain nameless in this entry. The company was recently sold to another company. In the transaction, our new owner gets "super-shares" or shares that get 15 votes when all the regular shares get 1 vote. The super-shares and the regular shares cost the same.

Why do I bring this up? Because even if I wanted to, I could not even bring a proposal to the shareholder meeting such as the one TIAA-CREF did. In this case, I don't even know why we bother to have an annual meeting, because the 15 to 1 voting rights prevents minority shareholders from ever asserting any kind of control over the company. The upside is that the dilution of shares from the hundreds of thousands of stock option granted to our executives without a shareholder vote affects our esteemed owner far more than it does me. But I really wish that we put such things to a vote at my employer (of which I am a shareholder also). I would vote against the large grants to executives. It is a windfall profit that is far out of proportion to the effect our executives have on the company.

Hopefully, the NASDAQ or the SEC will begin to require such votes.

Tags: investing

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