Thanks for your response. Restricted stocks seems to be the way to go. I believe that stocks are a great way to keep employees attached and concerned with how the company is doing but it also gives room for unethical things to be done.
Typically smaller listed firms don't engage in these Shenaigans.
Why is that?
The Owners/Promoters hold a significant majority of Shares in the company;so if the Company makes Profits,they just pay everyone a Nice Dividend!
The way I look at it;its the more fairer and equitable way to Distribute Profits equally to everybody.
In the rare event where the Company Hires Professional Managers to run the Company ;they tend to pay them Higher than the Market Price(In Salaries) and also to incentivize them offer Long-term Stock Options/Restricted Stock.
In cases where they are offered Restricted Stock;They can't sell the Stock immediately;rather its contingent to them holding the stock for 3-5 years(typically).
This is an awesome way to align The Interests of Shareholders with that of Senior Management(& prevent Stock Option abuse like in the case of Oracle and Apple).
Again, thank you so much for your very detailed response.
I can imagine that with companies that have so many shares in the market, that when one of those executives sells its stock options, the price doesn't get affected but how do "smaller" firms go about this?
I guess they pay them with cash options, but again, stocks are a good way to pay someone without having to really pay them, isn't it?
Speaking about Buybacks-Here's what Oracle announced just last week.After they reported increased Profits they are going to use more of the Cash to buyback Shares.
The reason Why I don't like Buybacks(as a Tool to return Cash to stock market investors) as against Dividends;which are straightaway paid to an Investors Bank Account in Cash(either Quarterly,Semi-Annually or Annually) is because they are open to tremendous abuse as can be seen even in the case of Oracle and many other Stock Option Scandals we have seen over the last decade or so(in the case of Wall Street stocks specially).
As part of Executive Compensation;Most Senior Excecutives today are paid in Stock options(basically the option to sell those options for Cash on the Open-market every Year typically around the time of their Annual Results).
Oracle and even Apple (previously under Steve Jobs) were experts at this.
They would simply award compensation for Larry Ellison(and other top execs in his inner circle) in the form of Insane Stock options for millions of shares.Which he would immediately proceed to dump on the Stock market,harming the interests of existing(And especially small investors).
To reduce the impact of these wholesale dumping of stock by Larry Ellison (otherwise the Value of the stock price would plummet like crazy);the company announces Stock Buybacks periodically.
Larry Ellison has been doing it for Years now.
How on earth else do you think he Got the cash to buy an entire Hawaiian Island for 600 million Dollars this month???
As a Retail Investor I personally detest such companies which put the interests of Senior Executives above and beyond that of Common Investors.I Would rather invest in a company like IBM or Coca Cola or McDonalds or J&J or Microsoft or Exxon Mobil or ADP where the Senior Executives are paid primarily in Cash and the Profits are paid out to Investors annually in the form of Stable and Rising Dividends every year.
As the Single largest Shareholder in Oracle,Larry Ellison would still make a lot of money(in the form of Dividends) but other shareholders would benefit too.
Its a more Egalitarian approach to Stockmarkets.Unfortunately in the case of Oracle it will fall on Deaf ears!!!
The idea behind a Stock Buyback geoes something like this.
Lets say you have a Company A with (for simplicity sake)-1000 Stocks in Total.
Of which a Majority is held by Company Promoters/Owners ,lets say they own 700 stocks.
The remaining(300) are held by Private Investors including Pension Funds,Hedge Funds,Banks and Small Investors.
Now lets say the Last Traded price of this Company Stock is $ 100 per share.
Now when a Company generates Cash(from profits) they can do one of four things with it ,Payback existing Debt,Use it to fund acquisitions,Pay out Dividends to Investors and to fund Stock Buybacks.
What happens in Stock Buybacks?Company A will use Cash on its Balance Sheet to buy portion of all those Shares which are not held by the Company Promoters/Owners at a price which is above that in the market(so as to make it attractive for existing owners to sell the Stock back to the company).So in this case,they could end up selling at a Sufficent Premium of lets say-$150/share.
What does the company do with the shares which they have purchased from other investors? They typically tend to retire them.Thereby,reducing the number of Stocks in circulation-What does this do?It increases the value of the shares left in circulation.
The major reason why a Company like Apple would want to do this is to get rid of Dilution of stocks-Company Senior Execs get Stock options as part of their incentives/compensations which they typically tend to immediately dump on the market for cash every year[Steve Jobs and Larry Ellison were famous for this].
By Launching Stock Buybacks they limit the Dilution of Stocks.
The government, if helpless, incapacitated itself. It created loopholes in the tax system and companies like Apple are exploiting these and making the government look helpless. The government can change this by simply being the government -- pass the right laws that respect the wishes of the companies but still take into accoount the needs of the larger society.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.