Tuesday, June 4, 2013
Paul Hodgson at Forbes questions the Dell board's reasoning behind issuing Michael Dell more stock as part of his new compensation package. He has a point. The reason we might like stock compensation for managers is that we believe that ownership of equity, even substantial blocks of it, increases alignment of the managers' long-term interests with that of stockholders. They rise and fall with us, the regular stockholders. So far, so good. Mostly. Anyway. What about Dell?
Well in its proxy, it disclosed Michael Dell's compensation package for the fiscal year ending just a few days before announcement of the going private transaction. It turns out that last year - during the period in which the board knew or should have known that Dell was negotiating to buy the company - most of his compensation was stock. I guess I would question the wisdom of granting more long-term equity compensation to a CEO when he is in the process of collecting votes to take the company private. At that point, his interests and the interests of the stockholders are no longer in alignment and it doesn't matter how many more shares he is issued, they won't be.