Volume 9, No. 9

 

1999 S&P 500 Stock Compensation: The Fluff Grows:  America's love affair with options knows no bounds - at least during an extended bull market. Should that bull market come to a halt, green-backed bonuses may once again prove to be a powerful motivational tool to be applied on managers and workers. Until that time comes, options rule - and they're the compensation drug of choice for a nation of stock market-addled corporate addicts. The accounting rules governing stock compensation produce a fair estimate of how much these goodies cost shareholders, but there's one problem: the rules are elective, and most firms elect not to report stock compensation cost. Very, very few companies choose to fully report this cost in their income statement. Only the required disclosures in the annual reports provide analysts and investors with a picture of what earnings looked like with all costs included. Putting it bluntly: the footnotes reveal what the income statement should say. That's not an efficient way to deliver economic news. Investors can use that information to see whether or not their interests - net income - were gouged by the management and workers of their firms. Presented here is an analysis of stock compensation effects on the companies composing the S&P 500.

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