Thursday, November 23, 2006

Corporate Turducken Time

The latest two rages combine this Thanksgiving Day, corporate stock option shennanigans and creative cooking (not using books). An enterprising chef created the turducken, a combination of turkey, duck and chicken to appease the discerning pallets of American families. This parallels a decade long innovation in corporate compensation, to meet the greed needs of already highly paid CEO's, key executives and board members.

The latest stock option scandal involves the discredited ex-CEO of Cyberonics and the newly promoted Board chair, an ex-Congressman forced to step down in the late '80's for not accurately reporting his personal finances.

CEO Robert "Skip" Cummins resigned after an internal investigation revealed the company understated its executive compensation expense by $10 million and would restate their financials going back to 1999. The newly appointed board chair, Tony Coelho received stock options issued nearly three years before joining the board of Cyberonics. Options are taxable in the year in which the option is received.

Cyberonics CFO shared the company's practice regarding stock options to a group of investors. "All stock options are granted the day of approval and are priced at fair market value on the date of the grant". It appears the company did not follow their stated practice given the resignation, the financial restatements for prior periods, and the Board chair's receiving option grants issued 3 years prior to his joining Cyberonics.

Why is this important? Extrinsic motivation programs like incentive compensation are the foundation for President Bush's No Child Left Behind education initiative. If CEO's are smart enough to gain the system to their advantage, what will America's educators do? My guess is most teachers are a quicker study than their business counterparts. How twisted will our education system become under the Bush cabal? Will it look like the turduken, part chicken, part duck, and part turkey? My guess is it will resemble the turkey part, but only time will tell...

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