I realize that "Scandal" is a very strong word, but I have been warning clients and investors for years that corporations and Wall Street have been in cahoots, and the victims of all their greed and shenanigans have been the small investor.
Unfortunately, I feel like my warnings have fallen on deaf ears. Despite accounting irregularities, and the self righteous enrichment of these gangs at the investor痴 expense, investors have yet to grasp the nature of the beast. I know this by the large number of investors who still have accounts at Wall Street firms. I guess I just don't get it.
Yesterday, I posted a list of a few insider buys and sells. I hope you noticed that huge amount of shares that insiders sold, and also have available to sell in the future. In most cases these insiders did not purchase these shares with their own money, these shares were either part of a stock grant or options plan that Wall Street helped the companies design.
While you and I are reaching into our pockets and using our hard earned cash to buy shares in public companies, executives simply have stock handed to them. This is a crying shame, not to mention a slap in the face of every investor that buys stock.
Currently, the focus is only one the backdating of stock options. Backdating is only a small piece of what should be fixed within a broken corporate compensation system.
Company痴 want us to believe that issuing stock grants or options give executives an incentive to work hard to improve the business of the company. What a bunch of crap!
If you pay an executive a competitive salary, and throw in a performance bonus, that should be enough. If an executive wants to own shares of the company stock, make them reach into their pockets and buy like the rest of us. If every public company had this policy, there would be no issues about keeping and retaining talent because every company would compensate their employees the same way.
As we speak, there are about 60 companies being investigated for the possible backdating of stock options. What gets me upset is this is not as important as the giveaway program that exists with stock grants.
We often here of companies buying back stock. On the surface we believe this is a good thing since reducing the number of shares outstanding reduces the float and is good for earnings, and the shareholder. When corporation痴 buyback stock, and then grants some of those shares to executives, the buyback is nothing more than a huge entitlement program for executives.
Warren Buffett has mentioned this issue in his letter to Berkshire Hathaway shareholders.
So, in light of the current corporate compensation situation, "scandal" is a good word to use. The definition of scandal is; "A publicized incident that brings about disgrace or offends the moral sensibilities of society, or a person, thing, or circumstance that causes or ought to cause disgrace or outrage."
