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Saturday, April 01, 2006

Ineptitude at the LA Times 
Here's an example of a reporter and editorial staff whose competence is not up to its beat:


Chief's Pay Rises as Gap Struggles
Paul Pressler is awarded stock options valued at $15.2million despite missing key targets.
By Leslie Earnest, Times Staff Writer
March 29, 2006


Gap Inc. Chief Executive Paul Pressler last year failed key performance measures set by the apparel chain's board.

So how did directors respond? By awarding him stock options worth $15.2 million — nearly triple the amount he got the year before — and maintaining his $1.5-million annual salary.


Pressler's compensation was outlined Tuesday in a regulatory filing made by the San Francisco-based apparel giant. He was not given a bonus because he failed to meet the company's criteria for earnings, "economic profit," cash flow and growth in earnings per share.

But the Gap board's compensation committee awarded him two separate grants of stock valued at $15.2 million. The larger grant is contingent on meeting per-share earnings targets.


I'm sure the reporter was eager for a "gotcha" story. But if you're going to write about stock options as they figure in executive compensation, you'd better comprehend what they are. As far as I can tell, the LA Times has no clue.

First of all, the article says the exec was granted stock options. Then the article says the exec was granted stock. The two are not at all the same thing. Which is it?

If the grant was an option grant, how does the paper arrive at the $15.2 million valuation? After all, the right to buy X amount of shares at today's current $15.2 million value actually has a present market value of zero at the time of the grant. The only way to build value in that award would be for the CEO to increase the value of Gap stock - which is exactly his job.

He failed to meet earnings targets. The article concedes he didn't get a bonus. The article concedes he didn't get a pay raise. The directors directly tied his compensation to future performance as far as I can tell - exactly what a board of directors should be doing. The reporter hoped to afflict the comfortable, and wound up with a self-inflicted wound.

Apparently, no one on the LA Times business desk is competent to write about corporate governance or executive compensation. Apparently - and shockingly - the LA Times business desk doesn't know the difference between stocks and options.

Splash, out

Jason

Comments:
"Apparently - and shockingly - the LA Times business desk doesn't know the difference between stocks and options."

Jason, exactly why would you be suprised by that?

Since The Gap's BoD acted, it's time for the LAT to attack The Gap, Inc. for their past financial performance. Oh, as a btw, where have they been (I'd say they are a day late, except it's more like 6 months). Poor performance by The Gap, Inc. isn't exactly a "news flash", except maybe to the LA Times.


Maybe, they should write an article on their own financial performance. Let's see - The Tribune Company purchased the LA Times ($8 billion purchase of Times Mirror in 2000), and today that looks to be approximately 100% of the market's value of the whole entity.

So, the short story looks to be that in less than six (6) years, the parent company (The Tribune Company) has in effect pissed away $8 BILLION dollars worth of shareholder value. Now, that's impressive.

Hey, if you (or I, for that matter) had been part of that type of fiscal performance, we might just try anything (and I mean just about ANYTHING) to divert attention to somebody else.

Oops, can't do that - we're BLOGGERS - we've got to have integrity. Too bad the LA Times hasn't ever heard of the word....
 
Jason, I think you are way out of line here. The LAT article is simply quoting the Gap's own figures from their DEF14A SEC statement filed a few days ago:

http://www.sec.gov/Archives/edgar/data/39911/000119312506065009/ddef14a.htm#tx91834_29

(which, speaking of doing your homework, is something it took me about 60 seconds to find).

I expect that the valuation Gap placed on these options is arrived at via some standard scheme like Black-Scholes, though I haven't read the SEC statement in that much detail yet. Valuing employee options is necessarily imprecise but valuing them at zero is ludicrous. They cost the company very real money if they're exercised - though they may not be.

There's nothing specific to the LAT in this. Several other finance media articles quote the same figures. Don't go on a rant for the reporter taking the Gap at its own word.

Jon Leech
 
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