You may recall that Scott NcNealy, at the time two years ago as chairman and CEO of Sun Microsystems, used the occasion of the JavaOne developers conference to chat up the crowd on pending action to amend accounting rules to make stock option grants an expense item for public corporations. "Where's the outrage?" Scott demanded to know.
"Congress is running around, about to skewer one of the most innovative pieces of technology in America," he said that day. "They got the accounting wrong, the valuations wrong, the motivations wrong. We can't let this world be run by accountants, for God's sake."
Amen. So now there's this elephant in the room, particularly in the Silicon Valley theatre, about these little investigations and inquires about the timing for said precious stock option grants. A number of companies are in the process of doing restatements, and watching the gains of the last two years in their stock valuations disappear. Poof. Some have been delisted by some stock exchanges. Some executives have been fired. And some of the accounting firms, once again, look like a bunch of deaf, dumb, and blind monkeys with head visors.
And there will be more companies and individuals stung by this slow-motion train wreck of back-dating options grants that is pulverizing cash from out of companies' valuations like so many bolts from a Boston tunnel's concrete lid. Sun, by the way, has had a tradition of squeaky-clean books, and does not appear under the stock options timing cloud.
So where is the outrage from the rest of the people in these other companies who did not benefit from timing shenanigans with options but now pay the price for those, mostly at the top, who did? Did the Joe Blow web designer at Screw-them-all.com make up the rules of grants timing, or did the front office quietly set that policy without asking the innovators? Where was the compensation committee on the boards? Innovating?
Where's the outrage from the rank and file workers for these companies who are seeing their retirement equity wither or plunge deeper under water? Where's the outrage from investors who could only buy the shares outright at market rates who now see their investments swoon because some other greedy pricks gamed the system? These options were touted as giving the sweat-equity workers a way to make some dough by sharing in the company's success -- but mostly only the early-ins, early-outs and the top dogs got the booty.
I got to thinking about this side of the outrage equation after reading Paul Krugman's op-ed piece in today's Times (registration and up-front, market-rate payment required), entitled, "Left Behind Economics."
Of the top 1% of the U.S. population in 2004, cited in the article, that made off with 12.5% growth on their income -- versus 4.2 % GDP growth and 1.5% growth for the other 99% of the working stiffs that year -- I wonder whether these Titans of Industry really needed the extra boost that gaming the timing of the options got some of them. You know who you are, there, by the pool.
Late addition: I was further perplexed by the lack of outrage after Saturday's Wall Street Journal article (registration and up-front, market-rate payment required) on the legal but dubious timing of granting some executives at some companies options during the post Sept. 11, 2001 plunge in the stock market. There was time to time these options to the market drop due to a national tragedy for executives, but not enought time to allow this "fringe benefit" for the rest of the companies' workers. So you apparently do need to be at the very top to benefit from a general tragedy. As Mel Brooks wrote: "It's good to be the king." Nice.
I'm beginning to think, despite Scott's now-muted rants about innovation, that the whole business of stock option grants as a way of compensating employees (and don't forget, executives, executives, executives) during Silicon Valley's boom and bust cycle(s), was and is innovative only in its effectiveness at over-hyping, misguiding, ill-rewarding, ill-managing, gouging, lying, gaming, and ultimately screwing up an otherwise worthy wealth creation opportunity, which is the high-technology growth corporation.
Even without the back-dating scandels and gross 9-11 tragedy exploitation, granting of options doesn't seem to carry much in the way of supposed egalitarian virtues that many executives used to justify them. Yes, where is the outrage?