JPH1 --
There is quite a bit written about management-shareholder conflict,
from popular books such as "Barbarians at the Gate: The Fall of RJR
Nabisco," Burrough & Helyar, 1989 to academic analyses of conflict:
University of Texas McCombs School of Business
"Business Combinations" (Prof. Stephen Limberg)
http://www.mccombs.utexas.edu/dept/accounting/limberg/topics/t14-mrg.doc
A Google search using the following term will turn up several interesting papers:
"management-shareholder conflict"
At issue is the way in which management diverts cash flow to its own
purposes, rather than in increasing returns on equity. It can be done
through excess or non-competitive compensation; use of company assets
for personal expenses (company jets, country club memberships, etc.);
or investments in favored but uneconomic businesses. The Burrough &
Helyar book is interesting because it argues that RJR Nabisco
executives were guilty of all of the above sins before the 1988 LBO
achieved with Kohlberg, Kravis & Roberts (KKR). The result was what
academic theorists would argue: the firm's stock was seriously
under-valued (in the 40s) before the eventual $108 per share LBO.
LBOs work by acquiring a company, usually with large amounts of debt,
then rationalizing the company through belt-tightening and asset sales
to get the capital structure back in competitive ranges. Jerry
Kohlberg had been doing LBOs since 1965 (long before the formation of
KKR), though usually as friendly buyouts to provide cash to aging
owners. Burrough & Helyar write, "In most cases he gave management
stock incentives, which he found did wonders for their ability to run
the business more efficiently."
MIDDLE MANAGEMENT & OPTIONS
----------------------------
Using the following Google search strategy will yield several thousand
articles but you'll have to sift carefully to find information
pertaining directly to your topic:
"middle management" + "stock options"
Many of the references generated are either company plans available on
their investor relations pages -- or references to the current
controversy over whether stock options should be expensed or carried
off the balance sheet (the current practice). The Enron and WorldCom
debacles have amplified the stock option controversy.
However, there are some interesting articles -- and directions to take
the search. The National Bureau of Economic Research (NBER) has a
research paper on changes in corporate management over the past two
decades. It contends that organizations have significantly fewer
layers of middle managers and that long-term options are increasingly
being used to retain middle managers. An important aspect of the
options programs in employee retention is clearly the vesting period,
as this article discusses "long-term options":
NBER
"The Flattening of Corporate Management" (October 8, 2003)
http://www.nber.org/digest/oct03/w9633.html
The NBER report was done in cooperation with Hewitt Associates, a
well-known Chicago benefits consulting firm. Adding Hewitt to the
search string gives us a little more focus:
"middle management" + "stock options" + Hewitt
One of the first things that you'll note is that benefits --
especially stock options -- are used very differently for upper and
mid-level managers. In Europe, company cars are common but options
get a far different tax treatment and so are not used as widely as in
North America:
Hewitt Associates -- Belgium
"Public Surveys"
http://was4.hewitt.com/hewitt/worldwide/europe/belgium/articles/services/publicsurveys_eng.htm
You may want to peruse Hewitt Associates pages, as they have a number
of company newsletters, publications and research papers on options.
They have an extensive range of articles on how options should be
handled in a merger or divestment:
Hewitt Associates
"Articles"
http://was4.hewitt.com/hewitt/resource/articleindex/article_index.htm
Here's one in particular that you may find helpful:
www.worldatwork.org
"The Worldwide Growth of Employee Ownership Phenomenon" (2001)
http://was4.hewitt.com/hewitt/resource/articleindex/talent/pdf/worldwide_growth.pdf
Towers Perrin, another consulting firm, has done a study of the use of
options among international companies and notes that the practice --
long standard in the U.S. and Canada -- is gaining everywhere:
Towers Perrin
"Stock Options Around the World"
http://www.towers.com/towers/webcache/towers/United_Kingdom/publications/Reports/Stock_options_world/stock_options.pdf
Like Hewitt Associates, Towers Perrin has the ability to search for
articles on stock options, though many of the articles treat the
current legislative debate over tax status of options.
In an August article, the Wall Street Journal notes that the current
economic environment is cutting back on options -- or at least slowing
their growth. It gives several specific examples where options
programs are being cut by 50% or more:
The Wall Street Journal
"Companies Get Stingy With Stock Options" (August 21, 2003)
http://www.careerjournal.com/salaryhiring/options/20030821-simon.html
The following article quotes both Towers Perrin and Hewitt Associates
on trends but has some interesting detail from a study done by the
Society for Human Resource Management and Arthur Andersen?s Human
Capital Services on how option and incentive programs are used in the
U.S.:
American Chemical Society Publications
"The Pluses and Minuses of Variable Pay" (Milton Zall, 2001)
http://pubs.acs.org/subscribe/journals/tcaw/10/i09/html/09work.html
The Society for Human Resource Management has some information on
"best practices" among highly-rated firms but several of the studies
are available only to members:
SHRM
"All Surveys"
http://www.shrm.org/hrresources/surveys_published/AllSurveysTOC.asp#TopOfPage
Note too, that there are those who argue that other non-economic
factors are critical in employee retention. Maureen Rosen, an HR
consultant, argues in this article that the quality of communication
with employees is the most-important factor. She even discounts the
value of stock options, saying that employees have taken to referring
to options as "Monopoly Money":
Triangle Business Journal
"Communication is Still Key to Retention," (Rosen, April 9, 2001)
http://triangle.bizjournals.com/triangle/stories/2001/04/09/focus6.html
Hopefully this gives you a good idea of option use in theory and
practice. If this answer isn't clear enough, please request a
clarification before rating it.
Best regards,
Omnivorous-GA |
