AFSCME, a Capitalist Tool
There are corporate sharks out there,
and we have to keep an eye on those
who want to take a bite out of our money.
By William Lucy
You may not realize it, but you and most other members of AFSCME own a piece of Wall Street. You’re capitalists. The money in your pension plan or 401(k) savings plan — your money — is probably invested in stocks, and anything that hurts those stocks hurts you.
None of us can do much about the daily ups and downs of the market, but over the long haul there tend to be more ups than downs. That doesn’t mean you don’t have to worry. Sometimes greed finds a way to make more by making your stocks worth less. One way involves stock options.
These days just about every corporation offers its top brass options to buy stock at a set price, say $10 a share, at some time in the future. Options are offered as an incentive. If a CEO does a good job, the company makes more money and the stock rises in value, say to $20 a share. The CEO exercises the option, paying $10 for a share with a market value of $20.
The problem is that we’re not talking about small change. In December, Michael Eisner, CEO of Disney, cashed in some of his options and cleared $565 million. Last year, the average CEO gained about $8 million from stock options—and that’s on top of fat salaries and big bonuses.
So what’s all this have to do with your pension? Plenty. You get ripped off three ways.
One, current rules allow companies to hide the cost of options. A company may issue so many options that they wipe out a company’s profits. Last year a good many companies that reported profits would have had to report losses if they had been required to show stock options as a cost. When a company reports lower profits or a loss, its stock price falls, and that means your shares are worth less.
Two, options water down your shares’ value. The total value of any company has a limit — there’s only so much money in the pot. Options involve putting additional shares into the market, and the more there are, the less each of yours is worth.
And three, when a stock has decreased in value, some CEOs get around this by having the directors cut the price of outstanding options. For example, the value of that $10 stock falls to $8, so the directors cut its option price to $5. The executive can then buy shares at $5 and sell them at $8, and you and other shareholders are stuck with the bill.
So what can you do about all this? That’s where the union comes in. Pension plans and 401(k) funds are managed by boards of trustees, and those for pensions often include workers’ representatives.
These boards are supposed to be your watchdogs over corporate rip-offs of the shareholders — not buddying up to CEOs but keeping them on the straight and narrow.
AFSCME’s plan for the future includes working more closely with union members who serve on these boards, to help them safeguard your retirement money. AFSCME is also a active member of the Council of Institutional Investors (CII), a coalition of hundreds of pension funds, and I have the honor to be a co-chair.
CII represents so much money that Wall Street has to pay attention. Just recently the New York Stock Exchange wanted to make it easier for companies to keep shareholders in the dark on stock options. With public pension funds leading the charge, the CII forced the exchange to reconsider its plan. That’s a victory for you.
All this sounds complicated, but the bottom line is simple. We live in a capitalist economy. There are corporate sharks out there, and we have to keep an eye on those who want to take a bite out of our money.
