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Thursday, August 24, 2006

Flat Stocks And Management Brain Drain: HD. MSFT. INTC, GE, EBAY, SUNW

One of GE's top executive left for Dutch research and publishing company VNU. Why? He is rumored to be getting a $100 million package. And, GE's stock has rarely spent much time above $35 over the last four years.

At Microsoft, the stock has spent four years rarely breaking $30. At Sun, the stock has only seen $5 a few times during the same span. Intel has touched $35 a few times over five years and now trades south of $40. At eBay, the stock has been in bad shape for only two years. It has spent some time over $40 during that period, but now trades at $26.

The management at many of these big companies must occasionally look over at Google, where the stock has run from about $100 two years ago to $375 now. It touched $475 for a day not so long ago.

Where are the management's yachts?

As GE and Microsoft have found out, many of their most senior people leave for better opportunities. eBay has lost some key people over the last year. Many of these manager made money when the stocks ran up a few years ago. There is not need for them to work for a small fraction of what they got when they had stock options.

A poster boy for leaving and making more somewhere else is Bob Nardelli of Home Depot. After bailing out of GE when he did not get the CEO job, he went to the big home improvement retailer and made over $240 million for a five year period.

Large companies with stocks that have not moved much over the last several years, are going to have to come up with something to keep their best managers. Cash is always good, but most corporations at not going to hand hundreds of million of dollars to their best people. Options granted below the trading price of the stock would work as well. They have to be disclosed, obviously, and cause a non-cash charge on financials, but they may be more palatable that cash.

There is always the option of actually doing things to drive share prices up. In the case of many large companies, this would be difficult. Most do not have ways to improve results or they would have implemented them already. Cutting costs and spinning out divisions might work, especially at places like Microsoft and eBay (who says that PayPal and Skype could not be IPOed).

It is a vexing problem, and there is no clear solution.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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