More Evidence that We Do Not Live in a Good World...

In a good world, Robert Reich's evisceration of SEC Commissioner Paul Atkins would already have led Atkins to resign, donate all his possessions to the poor, and take up a life of anonymous service to others. Alas! We do not live in a good world. Atkins stubbornly and shamelessly holds onto his job.

Let's turn the microphone over to Reich:

Robert Reich's Blog: SEC Commissioner Paul Atkins Wins the Prize: [N]ow comes SEC Commissioner Paul Atkins, who argues that companies who manipulate the timing of their executive options are not guilty of violating securities laws because such maneuvers are actually good for shareholders. According to Atkins' logic, back-dating executive stock options... create[s] a windfall for executives. But precisely because of this windfall, companies are able to compensate their executives more cheaply. They can issue fewer stock options or provide lower salaries. So by timing stock options this way, companies end up saving money, and investors pocket the savings.

Get it? I've heard a lot of arguments over the years to justify almost anything. But let me tell you, this is a doozie. It's a little like arguing that home insurers benefit if people back-date their home insurance policies to take effect before their houses burn down because then they'll have the money to renew their policies.

Bob. The arguments are not "a little like." They are a lot alike--in fact, they are identical.

Reich continues:

What's particularly weird about this logic is it completely ignores the purpose of executive stock options in the first place. They're supposed better align executive incentives with the interests of investors -- inducing executives to work harder to raise share prices. But stock options have this effect only if executives don't know what their option will be worth in the future. If they can go back in time and pick a date when the share price was especially low relative to what it is now or will surely be when a positive quarterly earnings report is issued, the incentive disappears because the future is no longer the future. It's the past. If the incentive that's supposed to be in a stock option disappears, shareholders are worse off. More stock has been issued, which dilutes the value of their own shares. And they get nothing in return. Anyone who believes companies will reduce executive compensation by the inflated value of a stock option has not been paying much attention to what's happened to executive compensation in recent years.

Congratulations, Commissioner Atkins.