Thursday, December 28, 2006

 

SEC modifies rule change; women and minorities hit hardest

I’m sorry but this is just a stupid headline: New SEC Pay Rule To Benefit Executives

Nowhere throughout the article does it explain just HOW the executive is benefited. The new rule modifies a July ’06 change in reporting that hadn’t even gone into effect yet. The SEC rules do not affect the executive’s tax reporting, instead, most logically:

“The approach the SEC announced Friday would spread the value of the options over the vesting period, following the method companies must use to account for the cost of options on their financial statements.”

The executive doesn’t get any more options; doesn’t defer taxable income and ends up with no more dollars in her pocket than before. The only real benefit here lies in the pleasure one gets in observing a displeased Rep. Barney Frank – but that’s a guilty pleasure we can all enjoy.

I expect Barney Frank to spout off populist nonsense on issues like this that he obviously knows little about but I expected more – admittedly, for no apparent reason - from a Business reporter at the Washington Post.

Comments:
The article should have spelled out the benefit explicitly.

It is indeed not a tax benefit; the SEC does not even have the power to change the legal or regulatory structure of corporate or individual income (or non-income) tax recognition or realization.

It is not a direct compensation benefit. Companies are no more free or less free to offer (or executives to accept) option compensation or other compensation.

The benefit is an indirect intangible benefit: a greater (though not absolute) degree of privacy about executive option compensation, particularly for large and long-term option packages. Executives thus are more able to avoid or minimize the political unpleasantness of obvious large payments.

Morally, options are among the fairest forms of compensation imaginable: they reward the protection of stockholder value. Frankly, I want my stocks' CEO to feel it personally when the stock drops.
 
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