Sunday, August 9, 2009

Benchmark Baloney

"Self-serving compensation practices, we can now agree, played a central role in the financial wreckage that still surrounds us. For example, rewarding Wall Street's outsized risk-takers with immediate bonuses, no matter how their trades worked out, turned out to be, well, disastrous. ... Like most companies, Alliance [Data Services] dispenses stock awards to its executives each year when certain performance measures are met. Where Alliance gets creative is in the benchmark those stock awards are tied to, one that excludes some fairly significant costs that the company incurs. Alliance calls this measure 'cash earnings per share.' ... But at least one analyst objects to the fact that the company's performance pay is based on a number that management can easily massage. And basing executives' pay on a measure that does not take into account the costs of acquisitions means that Alliance's management is encourage to make acquisitions with little regard for price", Gretchen Morgenson (GM) at the NYT, 26 July 2009, link:

Is GM ever right.

1 comment:

Anonymous said...

Ms. Morgenson has the olfactory skill of a bloodhound ... sniffing around all the Wall Street carnage.

[C]ash earnings per share. Wow. Kinda like mark to model ... must have learned it from the banks.