[independentmind]

More grist for the mill. :)

[bloggerjohn]

Stock options, Mr. Pitt says, were “a device that was supposed to align shareholder and manager interests—and actually disaligned them.”

---

Ah yes, the good old Law of Unintended Consequences.

[okie01]

“But something is missing,” he adds. “Life is lived on a slippery slope. It takes a person of character to know what lines you don’t cross. That part of the equation of corporate management hasn’t had the emphasis it should have had in the last decade or two.”

Ah, yes. Character. It always comes back to that, doesn't it?

And if the B-School gets it, perhaps the J-Schools will follow...

[Post Toasties]

Another legacy of the x42 administration.

[Roy Tucker]

The problem with most stock option plans is that they reward managers for increases in earnings without taking into consideration the true carrying cost of the equity. The addition of more retained earnings naturally leads to higher earnings, but does it represent extraordinary performance? In most cases the answer was no and as a result, managers were encouraged to inflate earnings. Managers were acting rationally to the rules of the game. It was the shareholders who suffered.

[Donald Stone]

Bump !!!!!

[Mind-numbed Robot]

“Maybe,” says a member of that faculty, Richard Tedlow, “we ought to think about CEOs and other managers as fully formed human beings, not as people who focus on one variable and who check their personalities at the coat rack. Some of what was going on was people doing exactly what the incentives suggest they do: Give me a lot of stock options, and I’ll make the stock go up.”

It is natural and correct to follow where incentives lead, within certain moral boundaries. The moral impetus comes from the top and Bill Clinton and Robert Rubin played fast and loose with the rules and with their actions. Add to that the moral relativism preached by the administration and their leftists enablers and the consequences were predetermined.

The "top" should always be God and the morals and principles taught in the scriptures (choose the one you will - Bible, Torah, Koran). Incentives should be designed to achieve the goal of the most good for the most people. Free enterprise, with its marvelous self-regulation based on human nature, and small government worked quite well until politicians started dealing themselves hands from the bottom of the deck (against the Constitution). Most government mandated incentives Tax code, government handouts) now lead to disaster.

[beckett]

For this camp, the smart response is to punish the miscreants severely and tinker with the parts of the system that are broken, taking care to avoid hasty changes with unintended consequences. “Things aren’t as broken as they appear to be,” says Mr. McKinnell.

I'm in this camp. Temin and Sporkin, both of whom are Galbraithian socialists, should be ignored.

Having said that, I will admit to being a bit too sanguine about the activities of Lay and Skilling when Enron first broke. I stand by my much less condemnatory attitude towards Kozlowski, however.

In general, Wessel analyzes the situation in a perceptive, balanced and fair manner. Let's just remember a sound conservative principle when deciding how to rectify matters: Don't throw the baby out with the bathwater.

Stock options have become prized perks for tens of thousands of employees and as such are highly political. Whatever reform is contemplated regarding them must be carefully field tested and debated before being enacted. As Wessel notes, stock options were designed to get upper management, and company employees in general, more involved in the company's response to the interests of investors. That objective remains a valuable one.