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Table: The Big Bite


Here's how the executive's favorite perk can hurt other shareholders long-term:

IF...

-- A company earning $1 billion a year sees both its income and shares, now trading at 25 times earnings, rise 9.4% a year for 10 years, and...

-- The company each year grants executives options for 3% of outstanding shares, and...

-- Executives exercise all options in the 10th year, and company buys back an offsetting number of shares

THEN...

-- Executives make profits of $5.2 billion from exercising options and selling stock.

-- Company spends a net $5.2 billion on stock and deducts same amount as expense from taxable income.

BOTTOM LINE

-- Shareholders are left with just $3.7 billion, or 54% of the $6.9 billion of additional income earned by the company above the starting level of $1 billion each year.


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