SEC Caves Into Corporations on Stock Options and Unrest in China

SEC Caves Into Corporations on Stock Options and Unrest in China and the future of the Yuan.

In July, the SEC handed down new requirements on how companies were handling the reporting of executive compensation via stock options. Now the SEC has modified those rules to the benefit of companies away from the institutional investors. Floyd Norris gave a great summary in today's The New York Times and we note it appeared on the A1 and then rolled to page 5 of the business section. May could have missed this story if they read on line of glanced at the business section headlines.

Companies will now change the way they report grants to make it more complicated to understand. Grants or stock options to the heads of corporate America will now seem smaller than they really are given how they will be measured. Last summer companies were required to disclose more and compile it in a summary compensation table. The December change will change the measurement to be amortized over a period of time.

As an example, if a C.E.O. got a $20 million dollar options grant the entire amount would appear in the summary table. Now only the portion applicable to the current year will appear and then it will appear in subsequent years making the tracking extremely difficult. The kicker here is the separate standard for executives retiring. It reads like another government regulation that no one can really understand. Even the usually eloquent Floyd Norris had a tough time with the document. The bottomline is it will be more difficult for the average investor to really understand how the executives are being compensated. For this, the SEC should be scolded.

Moving onto the issue of China, we picked up some great intelligence from one of my favorite clients. He notes that the visit by Federal Reserve Chairman Bernanke and Treasury Secretary Paulsen paved the way for the floating of the Yuan. We will continue to let our dollar fall in value so that when we ask the Chinese to float their currency the impact will be less. If the dollar appreciated, such a floating would leave a bad taste in the mouth of the Chinese leaders. So when the dollar continues to head so understand what is coming. The die is cast.

Also added was that there are increasing number of demonstrations in China that are failing to be reported by Chinese or the western press. However, Beijing cannot keep this quiet because the power of the internet is so great. Village protests are reported to hit 80,000 this year. Domestic unrest is China's largest issue for 2007. The big issue is land owners being forced to turn over land without the proper compensation. This unrest could wreak much greater danger to the Yuan than a devaluation if the civil unrest were to escalate into an Iraq type siutation. 2007 could be an interesting year as we enter The Year of the Pig.