[Estimated net paper value of options at today's closing price]
When the board of directors gave top executives a slew of stock options last year, it was hard to imagine they'd ever be worth much, given how low shares were trading back then.
Oh, what a difference a year makes.
Even with the recent decline in shares, those options are now worth hundreds of thousands of dollars for these individuals. And they'll be able to cash them in starting three weeks from today. CEO Craig Dubow (left), for example, can "exercise" a quarter of his options on Feb. 25. At today's prices, those shares would net him a one-day profit of $1.2 million. Newly named President and Chief Operating Officer Gracia Martore? She'd net $495,500 in a single day.Options give investors the right to buy company stock at a fixed price -- the strike price -- no matter how high the open-market price goes. The idea is to encourage executives to manage the company so the stock rises, theoretically tying their pay to performance, and rewarding all shareholders. In recent years, options have become a big part of Corporate America's executive pay. Under the options given a year ago as part of the 2008 pay packages, the strike price was set at $3.75, near where shares were trading at the time. The options became available -- or vested -- in four equal annual installments, starting Feb. 25, 2010.
Today, with GCI stock closing at $13.66 a share, those options are worth quite a bit more. In Dubow's case, he can exercise a quarter of the 500,000 options he got last year: 125,000 shares. He'd pay just $468,750 for those shares on Feb. 25. If the stock is trading at the same level as today's closing price he could sell them for $1.7 million, pocketing the $1.2 million difference.
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These are the scumbags who froze our pensions, put us on furlough and laid thousands of us off.
ReplyDeleteThey are proof that there is no god.
Looks almost like Enron. Hey, wait, it is Enron all over again.
ReplyDeleteIf only what happened to the Enron execs happens to them.
ReplyDeleteI was quite bullish on Gannett stock in the 1970s and 1980s when I participated in the employee stock purchase plan. I sold all my shares in the middle 1990s and never bought another one because of what I saw as the rapidly declining caliber of management, specifically in the publisher-top editor positions.
ReplyDeleteIt became clear to me that all they wanted to hear was yes, yes, great idea! Anything negative, even when it was realistic, was frowned upon.
That did not speak well for the company's future.
As for my 401K, I shifted the Gannett stock into other investments as fast as it arrived.
Honestly, shouldn't this be how executive board compensation works?
ReplyDeleteForget for a moment that these brainiacs and their consistent purchasing of lousy tech companies, lack of foresight and poor planning drove our stock down well before any recession.
If the stock price would triple in one year because of good leadership or heck, even good luck, I'd be happy to pay out the options, even if they are huge.
But conversely, a board that could drive a stock price from $81 in 2005 to $8 four years later? They should not only lose every option, their base should be clawed back and then they should be fired.
It's not acceptable to say that they did the best of comparable companies, or that they've positioned us for future growth. The cost savings they have found in the last year has been at the expense of dropping the people who could have taken us back to $80.
Jim:
ReplyDeleteThe question I have always had about options, but have always been to lazy to learn the answer:
From whom does the person with the option buy the stock?
If it's from the company, does that mean the company has to keep that stock in reserve somewhere, one share for each outstanding option?
If the company doesn't have the stock on hand, does it have to buy shares on the open market when the options are exercised? Does that mean the company has to keep cash in reserve for this?
Or do the shares simply materialize out of thin air, diluting the value of other shares?
Options are purchased from the company's treasury, using a pool set aside by the board of directors for just this purpose. I suspect these are diluting because I don't think they're counted among outstanding shares.
ReplyDelete