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Red Hat, Inc. Message Board

  • cpa38 cpa38 Jun 25, 2003 11:53 PM Flag

    It's not enough

    It's not enough that the execs of this company have awarded $40 Million in compensation with these options ... 5 M in options times $8 - difference between $13 current mkt price and $5 strike .... for a company that only has a $300 M mkt cap.

    They also provide:

    A 401 K where they match 25%, and an additional 12.5% when profit targets are met.

    A non-qualified deferred compensation plan to which they match 25% to contributions into the plan, and an additional 12.5% when profit targets are met. (no disclosure on the return paid on contributions - but rest assured it's much better than what you can get in the market these days - and it comes out of RHT shareholders' pockets).

    A non-qualified executive supplemental retirement plan - in effect a defined benefit pension plan (above and beyone the 401K). I don't even want to give the details. It will make you sick.

    This company isn't run for it's shareholders. It's run to line the pockets of it's grossly overpaid executives. And fools who keep showing up on this board talking about how undervalued this stock is haven't taken the time to read the 10-K.

    The market knows about the bloated options, the bloated salaries, bloated pension and retirement plans, the multitude of manners in which this company sucks money out of shareholders' pockets ... that's why this stock appears cheap. And that's why this stock will never go anywhere.

    Ignore me. Call me an idiot. Disagree with me. But know this ... the market knows about the crapola going on here. And the share price isn't going anywhere as a result.

    There is only one solution here. Make the stock cheaper. Make the execs continue to whine in conference calls about their shares being undervalued. Shame these greedy people into taking this company private.

    If they want to steal, make them steal from themselves.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • "Yes, the stock is forever doomed...There isn't a analyst worth his salt that would promote this company...as long as the overgenerous compensation schemes stay in place..."

      I thought management pay was too high when I bought the stock in 2000, but hey, no story is ever perfect. It proceed to go to more than seven times my purchase price. Starting from a much higher base RHT doesn't have that potential today, but it can double without breaking a sweat if either the world economy starts heading south again, or RHT shows its earnings can keep growing even in a stronger economy. cpa38's particular obsession is no more than just that, something that drives him to distraction but is of minor interest to many other investors.

      Meanwhile, one of the stimulants to RHT's outplacement business, missing in action for the last few years, is finally starting to rev up again. That is M&A activity, which usually results in layoffs of employees in positions that get outplacement.

      If RHT's June numbers come in on target, and the company reiterates its $1.80 projection due to a combination of outplacement strength overseas, growth in non-outplacement consulting, and M&A caused layoffs, then the analysts will all be forced to raise their estimates, and the stock will go higher, whether cpa38 believes it possible or not.

    • Good enough to achieve the necessary growth? We've been around that circle before. Monkeys could run this organization.

      Yes, the stock is forever doomed. The street has latched on to how these monkeys reward themselves. There isn't a analyst worth his salt that would promote this company as a good investment as long as the current mgt team is at the helm, as long as the overgenerous compensation schemes stay in place, as long as the CEO does nothing but whine about his stock price without taking the necessary corrective action.

      These idiots need to take this company private. It has no business being a public company.

    • "It's kind of like giving the weatherman a bonus for sunny days."

      You are saying that management of RHT has no more effect on the company's performance than a weatherman does on the weather. But that isn't the case. Layoffs (of people at a rank high enough to get outplacement services) zoomed in the US in 2001 and early 2002, due to an unwinding of the stock market bubble, and the economic effects of 9/11. By later in 2002, on a year to year comparison, the figures were down sharply. Had RHT been drifting along, its last few quarters would have been down substantially. But the company expanded aggressively, both overseas and in the non-outplacement human resources consulting, and as a result has continued to show strong gains. Maybe the shareholders are paying management a lot, but at least in the last few years we have gotten something valuable for our money.

      If there is one time when employee incentives might really make a difference, it is this year. RHT must hit $1.80 in fully diluted EPS (after the payment of any bonuses) to get a full bonus. Wall St. says it can't do it. According to Zacks, the mean of the five estimates is $1.59, the high is $1.75, and the low is $1.41 per share. If it only does the mean, bonuses will still exist, but they will be small. At the low estimate, I don't think bonuses will exist at all, except for some lower level employees who meet certain individual targets.

      Maybe RHT will succeed, maybe it won't, but management sure has a strong incentive to try hard this year. Coasting won't work.

    • Most of "if conditions are right" has almost nothing to do with management. If the economy sucks, and the company does well as a result, why should these people reap a windfall? Giving them options and bonuses does nothing towards creating the conditions that will make shareholders money. What made you money last time around had more to do with your timing and the lousy economy than anything they or their bonuses and options did.
      It's kind of like giving the weatherman a bonus for sunny days.

    • I don't disagree with cpa38 that management of RHT is overpaid. It does bother me. But at least they are overpaid fair and square: they have an established target of 15% growth in EPS, and if they achieve it, they earn a decent bonus, options, etc. If not, the bonus gets slashed or eliminated. If they far exceed the target, they get an extra juicy bonus. The net effect is that, on average, they are overpaid, partially because they are good enough to achieve the necessary growth.

      cpa38 asserts that this is all you need to know, that the stock is forever doomed because management is overpaid and has too many options. I assert that the pay and option situation is a merely a demerit. It is a factor to consider, but it is not the only thing worth considering, especially given the ultra low multiple. The company has a great record and a lot of potential, depending on the world economy and the speed of corporate and, outside of the US, social/political changes. I am certainly not saying that this will necessarily happen, but there are plausible scenarios that could have the stock much more than double this price within a year or so.

      I mentioned my happy history with the stock only because management was overpaid all along, even when I first bought it at a fraction of the current price. That didn't stop the stock from doing well in the past and, contrary to cpa38's viewpoint, I see no reason why it should stop it from doing well in the future, if conditions are right.

    • If we accept for the sake of argument that every charge cpa38 makes against management is absolutely true--that they are rapacious thieves--then we are forced to conclude that they must also be spectacularly brilliant managers. After all, despite all their outrageous money grabbing, fully diluted EPS in the last several years have exploded: $0.41 in 2000, $0.81 in 2001, and $1.57 in 2002. And keep in mind that those earnings are AFTER management's big paychecks.

      The large paychecks occurred primarily because of the superb performance, based upon the bonus formula. If the company doesn't reach $1.80 in EPS this year, bonuses will be slashed. That presumably would make cpa38 happy, but I, and most normal shareholders, would rather have higher EPS and higher executive bonuses.

      I'm sure cpa38 will come back and argue, as he did before, that any idiot could do well in the outplacement business the last few years. But that isn't true. If RHT had stayed just in US outplacement, sales and earnings would have been way down in recent quarters, compared to the late 2001-early 2002 mass layoffs due to the initial unwinding of the bubble and 9/11. Yet RHT's management wisely focused on overseas expansion, where there is large secular, as well as cyclical, potential. And RHT sacrificed earnings to expand its non-outplacement consulting, which is substantially outperforming its industry, and is poised for big growth should the world economy start expanding again.

      So which is it, cpa38? If management cares so little for the shareholders as you assert, then doesn't that mean that they are also incredibly brilliant managers, to steal so much and still leave so much money on the table for the shareholders? (And, of course, why would management even want so many options, if they are bound to be worthless because management is stealing from the shareholders?)

      Thus, to say the stock will always sell at a low price because management is greedy and Wall St. knows it, is equally valid (or, IMO, invalid) as arguing that the stock will always sell at a high price because management is brilliant and Wall St. knows it. If you actually read the research reports, you will see that most analysts don't give a fig one way or the other for management's pay package. The reason for the poor recommendations (all six analysts rate the stock "hold") is simply because they drink the Wall St. Kool-Aid that economic good times are always just around the corner. As long as that sentiment prevails, the stock will have tough going. Should doubts about the economy emerge, or RHT demonstrate that its earnings can hold up pretty well despite good times, the stock will take off.

      cpa38's jealous obsession with management's compensation, regardless of the merits of his case, is completely irrelevant to what will happen to the stock, except in one way: It makes RHT a very attractive non-dilutive acquisition candidate for a large business services company, that can afford to pay a nice premium for the stock (for which RHT's management would lobby hard, since they have so many options), and still be assured of nice earnings growth post acquisition as it eliminates duplicative positions and controls expenses. Would that meet your approval, cpa38?

      • 2 Replies to Bibbicif
      • Son, you miss the main points. EPS is much lower than what it could be if not for all the money grubbing by the mgt team. And, the stock is a loser because of all this crapola. The market sees it and discounts the share price accordingly. Mgt wins, shareholders lose.

        Anything to get the shareholders out of this losing situation would meet my approval. There is not another company on this planet that would buy this dog. The options and payola is too much to stomach.

        The only answer is for these theives to quit stealing from their shareholders. Take the damn thing private. If they want to steal, they let them steal from themselves ... not the investing public.

        And yes, I am outraged by the pay packages here. All shareholders have a right to be outraged.

      • Gawd, you got to love the Bib...well said my friend, well said. cpa is likely just a disgruntled ex-employee who is out to damage the reputation of an outstanding, high performing Management Team who likely dumped his butt..

 
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