The Ignorant Investor

I can't help but be a Microsoft shareholder given the number of index fund shares I own, but when I see something like this I begin to see dark forces in why the S&P 500 has been stuck in a range for years:

Microsoft (MSFT) yesterday granted 37 million shares to 900 executives under its shared performance stock award program. The plan, which was installed after the company stopped issuing stock options to employees, has a three-part vesting schedule, with a third vested immediately, another third in a year and the rest in two years. Based on today’s closing price of $25.94, the shares are worth $956 million.

Remember all that talk about how options ensure that the interests of management and shareholders are aligned? Problem is, it doesn't work in practice.

Here's almost a billion dollars going to executives who have presided over an operation that 1) sits on a ton of cash, 2) whose stock is been trading in a range for years, and 3) pays a pathetic 8-9 cent per share dividend. They defend this by pointing to billion dollar share buybacks, saying that buybacks are more tax efficient. But that argument lost a lot of weight back when dividends got new treatment under the tax law. They now cost investors far less than ordinary income from interest on bonds and money markets.

What kills me is that after the shares are bought back, the company then distribute those shares to executives under lavish compensation programs. The executives then sell them back to the market. The result? The number of outstanding shares stay basically the same over time, and the money is now comfortably resting in the officers' pockets. And it's all approved by the board of directors. Directors who are essentially selected by management and paid handsomely by the corporation.

So what's left for shareholders of Microsoft here? Tiny dividends. A limp, uninspired (but wealthy) management team. And a big fat screwing from the board of directors.

This sort of behavior isn't confined to Microsoft. It's a problem for a lot of other "growth" companies that essentially stopped growing years ago. Traditionally much of the stock markets total return to investors has been in the form of dividends. So at what point does our long nightmare as shareholders end? If I could talk to tech executives, all I'd say is pay a decent dividend, you greedy jerks.