Microsoft, for example, has spent heavily on share repurchases to counter the dilutive effect of all the options it has issued. In effect, Microsoft bet investors that its share price wouldn't decline precipitously. As of Dec. 31, Microsoft appeared in jeopardy of losing the bet. The math isn't quite as bad as it looks. Shareholder activists Minow and Robert A.G. Monks, chairman of Lens Investment Management, have criticized IBM chief executive Louis V. Gerstner Jr. for spending billions of dollars of IBM's money repurchasing IBM shares.
Some observers say stock options can create a perverse incentive.
Combined with stock market pressure to meet quarterly earnings expectations, options can heighten the incentive for management to cook the books, analysts say. Somebody who is trying to get the stock price up or keep the stock price up . . . In recent years, a wave of companies have issued costly and embarrassing corrections, announcing that the earnings and revenue numbers they had previously reported were false. Investors have lost billions of dollars in the aftermath of such disclosures. Last week, Denise L. Nappier, the treasurer of Connecticut, who oversees retirement funds for state employees, appeared at an AFL-CIO news conference in Washington to claim a victory over runaway stock options.