In the December 15, 1997 issue of Business Week magazine there was a survey of U.S. corporate executives. The executives were ask what their biggest financial worries were. About 65% of them said that their biggest concern was holding too much company stock. This is a joke for two reasons. First, most mid and large cap companies have very low insider holdings. As companies grow in revenue and capitalization insider ownership depreciates considerably (Exceptions: Microsoft which explains why the stock has performed phenomenally for the past decade; insiders still own a large amount of the outstandings shares of common stock.) Second, if the CEOs are worried about holding common stock can you imagine what it must feel like to be a small shareholder. CEOs have "perfect information." They know exactly what's going on with the company and if they don't like it they can change it. Small shareholders are lied to, misled, told that the company doesn't comment on its stock price, and given information after the institutions and analysts. Small shareholders are basically treated like second-class citizens.

The executive's second biggest concern was their pay being too closely tied to the common stock price. This is ridiculous. Virtually, every CEO is paid a hefty salary, guaranteed, no matter what. On top of that, almost as many are paid a nice fat bonus, again, no matter what. The one thing that is tied to the common stock price are their stock options and their stock options are simply icing on the cake, that is, if the stock tanks, they will still make a ton of money and if the stock does do well, they will even make that much more money. This information regarding salary, bonuses, and stock options can all be found in the Notice of Annual Shareholder Meeting report.

If you are an individual stock holder, start checking out these reports when you get them. You will quickly learn there is not much risk in being a CEO. The worst thing that can happen to them is being fired, which can happen to all of us. However, when a CEO is fired they usually already have millions of dollars in the bank and on top of that their severance pay is usually millions of dollars too.

The last three concerns were bias against older workers, losing their job, and reduction in retirement benefits. Can you believe this. CEOs make more money in one year than most of us make in 20 years. If CEOs are concerned about bias against older workers, losing their jobs, and reductions in retirement benefits can you imagine how worried the average white and blue collar workers are?

Business Week's smartest moves of 1997 was, "Despite inflation jitters amid dropping unemployment, Alan Greenspan resisted calls to boost rates beyond last spring's quarter-point hike. Result: a nicely humming economy."

This could have just as easily been written, dumbest moves of 1997: Alan Greenspan, feeling that wage costs could increase, raised interest rates last March, sending the stock market into turmoil. Later in the year it would be clear, just like the data suggested last March, that Greenspan was completely wrong. Inflation, as well as wage costs remained low. In fact, later, Greenspan himself, would state that there is more of a concern for deflation than inflation. Result: in spite of Greenspan's attempts to ignite inflation, the markets overcame and we had a nicely humming economy.

It seems that the only thing that is irrational is Greenspan himself. (FYI, the stock market is up over 2,000 points or $2 trillion, yes trillion dollars since Greenspan made his crazy remark about the stock market and irrational exuberance.)

Return to: Inside the Stock Market