Also, check out: "Gerstner Dumps $40.9M of IBM Stock", "IBM's Best Years Are 3-4 Decades Behind," ICC: More Armonk "Fudge," Armonk's "Fudge Factory," "Now IBM Is Even 'Officially' Spineless", "Where Armonk Meets Wall Street, Greed Breeds Incest", "Some Insiders Cashed in on IBM Stock Buybacks", "Louis XIX of Armonk", "Wag the Big Blue Dog", "the new blue"
The copyright-protected information contained in the ANNEX BULLETINS is a component of the Comprehensive Market Service (CMS). It is intended for the exclusive use by those who have contracted for the entire CMS service.
IBM CORPORATE AFFAIRS
IBM Insiders' Trades Reveal Greed Is on the Rise at Armonk Lou's Lair vs.Bill's Loft Top Armonk Brass Paid Four Times More, But Top Microsoft Executives Deliver 18 Times Better Value for the Money
PHOENIX, June 28 - Picture yourself as a well paid trustee of a large trust fund called "Lou's Lair."
How well paid?
Well, let's say $13.5 million per year. In cash. Before any stock options.
Must be a humongous fund, right?
Not a bad size. About $81.7 billion in gross income. But far from being the biggest on Wall Street these days.
So the fund must be doing extremely well?
Not badly. About $6.3 billion in annual net income. Minus a billion-plus dollars if you remove some questionable tax-related financial finagling.
But that leaves only about a 5.8% annual net return?
That's about right.
Gee-whiz... But that's 7.3 times less than what "Bill's Loft" fund returns!
But wait a second... Wasn't Lou's cash compensation 25 times higher than Bill's? ($13,532,803 vs. $542,297).
Yes. Before Lou's stock options.
And how much were they worth?
Nearly $33 million.
Nearly $33 million?!
Well, $32.8 million to be exact. In 1998 alone.
Only in one year?
Yes. And this year promises to be even more bountiful for "Lou's Lair." Lou has already added $25.3 million.
To his trust fund?
No. From the trust fund. To his wallet.
So how much money has the top trustee of "Lou's Lair" received from his "trusting" investors?
About $64 million.
About $64 million?
In stock options alone.
You must be kidding!?
And you must be living on Main Street, rather than Wall Street, where Greed is king.
[At this point, our Main Street investor takes out a hanky and wipes off the perspiration from his forehead]
I see you're sweating a little. You don't mean to tell me you've put your money into the "Lou's Lair" fund, too, do you?
[a silent nod]
I don't mean to rub it in... And I admit that Bill's bad. Almost as bad as that other Bill at the White House. For, this Bill has got us all looking through his Windows, and paying for the privilege of it - whether or not we like the smudgy scenery. Yet, my friend, even that's cheaper than paying for the upkeep of "Lou's Lair."
["Lou's Lair" investor sighs] Really?
By how much?
About 86 times.
About 86 times?
Yes. That's how much more money your top trustee at "Lou's Lair" took home in 1998 compared to "Big Bad Bill" who runs the "Bill's Loft" outfit.
But if you take the "pay for performance" into account... factoring in that Microsoft's net margin is 7.3 times higher, and its market cap is about double even that of "Lou's Lair" fluffed up trust fund... well, what you will find is Bill's investors got nearly 400 times better value for their money than did Lou's backers.
How's that possible?
Easy. Lou appointed his pals to the "Lou's Lair" Executive Compensation Committee (Knight, Vest, Chenault). In fact, there are only three old Board members still left from the pre-Lou days. The other eight are all Lou's appointees. Including Chenault.
Chenault? Who's Chenault?
IBM's latest Board member. Ken Chenault is Lou's old pal from their days at American Express. Chenault is now president and COO there. And Lou saw to it that he went straight from the street to the IBM Board's Executive Compensation Committee. No apprenticeship; no time out to make friends with other IBM Board members... After all, Chenault has already struck the only friendship that counts in the Old Boys network.
And what about Bill?
Well, Bill doesn't need the Old Boys network. He owns 20% of the company which is worth nearly half a trillion dollars. All Bill needs is to keep his license to print money. Which the other Bill's Justice Department is trying to revoke from him.
But why, if as you say, "Bill's Loft" investors got 18 times better value out of their officers than did "Lou's Lair" shareholders? And if the top five "Lou's Lair" executives got four times more money from their trust fund than did "Bill's Loft" officers? ($77.0 million vs. $19.9 million). Why is the Justice Department after Bill and not Lou?
Good questions. You should ask the other Bill - the one without a loft, but with a White House. And Janet (Reno). And Arthur (Levitt). And anyone else in Washington who is involved in the charade called the Wall Street regulation.
Insiders Sell, As Firm Buys
Meanwhile, you've heard us say many times that "Lou's Lair" is a Big Blue empire built on fluff, not substance.
But don't take our word for it. Just ask the "Lou Lair's" lieutenants. They have all voted with their wallets against it.
Yes, even that nice Canadian did it; the Big Blue's "software czar," John Thompson, the third highest-paid IBM executive, whose 1998 compensation was 17 times higher than that of the No. 1 and 2 Microsoft executives (Gates, Ballmer). Never mind that Microsoft is making 4.7 times more money than IBM Software.
And yes, even that decent American did it; the old Big Blue global-trooper, Bob Stephenson, whose 1998 compensation was 12 times higher than that of Microsoft's top two officers. Never mind that Microsoft is booming, while IBM servers are shrinking, and some are even losing money.
And yes, not surprisingly, the "Teflon Sam" did it, too - the "Al Gore of the Gerstner administration;" the inveterate tell-the-boss-what-he-wants-to hear head of IBM Global Services, Sam Palmisano. His 1998 compensation was more than nine times higher than that of the two top Microsoft officers. Never mind that Microsoft makes more than twice as much money in a single quarter as IBM Global Services does in a year.
Which leaves us with another of Lou's old friends, Larry Ricciardi, ostensibly IBM's general counsel, who had also doubled up as the CFO after Lou's other pal, Richard Thoman, left Armonk in 1997 to run Xerox. Ricciardi's take home pay in 1998 was 18 times greater than that of the two top Microsoft officers. As for Greg Maffei, Microsoft's CFO, he was not even listed among the top five "Bill's Loft" executives.
Which kind of puts in perspective the relative importance of engineering at the two leading IT companies. At "Lou's Lair," financial engineering and Greed are kings; at "Bill's Loft," software engineering and Profit rule.
Furthermore, while the IBM insiders were selling nearly a quarter billion dollars-worth of the Big Blue stock for about a $150 million pretax profit, the company they were running was spending about $27 billion buying the stock.
And now, adding the exclamation mark to our assertion that Greed rules Armonk, IBM has announced additional layoffs and cutbacks to employee benefits, such as the pension plan (see Annex Bulletin 99-17, 5/28/99).
The fact that the federal government is challenging "Bill's Loft" and not "Lou's Lair" also helps put in perspective who runs Washington and for whose benefit (Wall Street's, not Main Street's).Happy bargain hunting!
CAST OF CHARACTERS:
Lou - Louis V. Gerstner, IBM chairman and CEO, member Bilderbergers, CFR, Trilateral Commission (see "The China Wing of the New World Order").
Bill - Bill Gates, Microsoft chairman and CEO, member Pied Piper Club (see "Microsoft Eclipses IBM")
Volume XV, No. 99-21
Editor: Bob Djurdjevic
5110 North 40th Street, Phoenix, Arizona
|Annex Research | Annex Bulletins | Quotes | Workshop |
Feedback | Clips | Activism | Columns |