Every weekend law professor Larry Ribstein must wake up with an evil grin on his face. Another Sunday New York Times Business Section means another column by Gretchen Morgenson—and another chance to smash her to tiny, little pieces. Some of his takedowns have been so effective that we actually start to feel bad for Gret-Gret.
This Monday we find that Larry actually has something nice to say about Gret-Gret’s Sunday column on share buybacks.
This week Gretchen Morgenson is writing about executive compensation. Who'd a thunk it.
Her specific issue is how share repurchases can help executives whose pay is pegged to earnings per share. So she's proved that she can divide -- when the denominator goes down and the numerator stays the same the fraction is larger. Very good, Ms M.
Well, we guess that’s kind of nice. Then it get’s nasty, again.
But I'll pass all that and get to the dumbest part of the column. She says
when buybacks are used to offset multitudinous stock option grants to corporate executives, an even more pernicious outcome can occur: the purchases may actually destroy shareholder value by forcing companies to essentially buy stock in the open market at high prices to cover shares sold at lower prices to executives.
Ok, now Ms M proves she can subtract, too. But wait. How does one number relate to the other? It's fine to prove you can subtract, but you really should know why you're subtracting. Why should we care about the difference between the share price at the time of the repurchase and the share price at the time of the option exercise?
Believe it or not this isn't the first time Morgenson has uttered this stupidity.
Gretchen Morgenson proves she can divide and subtract [Ideoblog]
Why Buybacks Aren’t Always Good News [New York Times ($$)]