That has at least 3.

The first is that an alternate way of giving money back to shareholders - and one that many shareholders prefer for tax reasons - is through stock buybacks. Those are not counted in your plan.

The second I see is that you make it too easy for the company to manipulate its behaviour to affect how it treats employments. For instance a CEO with large guaranteed bonuses has an incentive to liquidate the company and sell it back to shareholders. (Taking, of course, a large guaranteed bonus for doing this.) Conversely a company can choose to not compensate shareholders in any way for a long period (shareholders continue to buy on future prospects - after all the company appreciates in value and someday management will change) to avoid handing out bonuses that the rank and file (emphasis on rank in the case of some programmers) expected.

And a third is that the company is just creating another way to compensate people without accounting for it in the present. Any such mechanism, widely used, leads to the exact problem that we see today with options. Namely that companies have large and real liabilities which the market has not factored in properly.

Cheers,
Ben

PS I strongly disagree with Fortune that options have been factored in. Ever seen a Bloomberg terminal? The easiest figures to get to, like P/E, do not factor in stock options, and so I can guarantee that traders while trading don't take them into account. If it was being factored in properly, then there wouldn't be any reason for companies to push to not report them...

PPS This is one of several items where people who have bought hogwash about "efficient markets" figure that information must have been factored in, missing the fact that creating a transaction cost for getting information can create real market distortions.

Would stockholders prefer to get their money through buybacks because of the more-favorable tax outcome? Sure. But that smacks of the same type of accounting chicanery that we're trying to solve.

I disagree.

The kind of chicanery that was under discussion comes from businesses incurring large liabilities in ways that they can avoid making their owners (ie shareholders) aware of, causing investors to seriously misjudge the financial outlook of their holdings. This is a cause of serious financial distortions in our markets.

By contrast using stock buybacks instead of dividends so that investors can get taxed at the lower capital gains rates rather than being taxed for income, and then incurring brokerage fees, is the game of arranging financials so that the government categorizes your spend in a way where you pay less tax. This is playing the game of the IRS in the way that Congress and special interests set it up to be played.

Both are clearly chicanery. However I believe that there is an obligation to inform owners as clearly as you can when they ask of what they really do or do not own. Conversely I do not agree with the way that public funds are levied or allocated. Therefore undermining the first bothers me, while the second (when it is done within reason) doesn't.

Cheers,
Ben

I am saying that the CEO would sell off peripheral operations to be able to make exceptionally large dividend payments. Which, by contract, results in a large bonus to the CEO for realizing that shareholders really wanted a cash lump sum rather than maintaining their investment.

Cheers,
Ben

with the money returning as dividends (and per Drew's plan, with part of it going to the CEO) rather than being invested in other areas of the business.

Basically the scenario is one where the CEO acts like a corporate raider, except that rather than paying off junk bonds he is giving a fat dividend to shareholders (like it or not) and himself a big fat bonus.

Cheers,
Ben