by Robert Reich

[unblock]

2. vast options grants are a sickness, causing many ills.

just one example. say i'm made ceo of a large supplier of an important commodity. oil or whatever.

as ceo, with a bonus based on my performance, or the performance of my company relative to an index of the entire industry, i might have a big incentive to run the company efficiently, invest in profit-generating new ideas, etc. generally, make my company the best it can be.

but with stock options, my main goal becomes making the stock price zoom up, lots.

but isn't that pretty much the same thing, you say? isn't stock price essentially the same as ceo performance? i mean, isn't the ceo's job to make the stock price go up?

no!

certainly, ceo performance can have a strong influence on stock price, but it's by no means the only determinant of stock price, and why should be ceo benefit from those other factors? interest rates, the global price of oil, the global supply of oil, etc., all affect company price.

so as a ceo i could have a lousy year, do nothing useful. maybe even do some damage to the company. but if war breaks out in the middle east and oil prices boom, the stock price zooms and i'm stupendously rich for doing nothing.

not only that, but then my *incentive* becomes these other things. i'm no longer so interested in the actual company, but i'm obsessed with war breaking out in the middle east and such. so i now spend my time in washington beating the war drums instead of actually working at the company because the influence i can have on these "external" forces is more lucrative to me than actually running the company better.


all of which is crap.

what a screwed-up system we have.