I’m not a huge NFL fan, but I do know that if a team loses every single regular season game, their head coach should probably start updating his resúme.
In corporate America, however, that’s not exactly how things work.
Take Ginni Rometty, for instance, who took over as the CEO of IBM in January 2012. After overseeing 15 consecutive quarters of declining revenue and profit margins that fell 15 percent from 2014 to 2015, Rometty actually scored big.
How? She was awarded a $4.5 million bonus, bringing her total 2015 compensation to $19.8 million. It seems her poor performance paid off!
Note: Rometty took over as CEO in 2012.
Rometty is far from the highest-paid executive in America (she ranks about 56th according to Equilar, which tracks CEO pay) but Rometty’s compensation, in particular, fascinates me because of the sheer magnitude and scope of problems within the halls of Big Blue.
As I have reported in previous articles, IBM is currently struggling with several key (and some might say) controversial issues.
For one, the business is swept up in several overseas bribery and accounting scandals. Two, we strongly believe the company made a $2 billion mistake by buying SoftLayer, a small-potatoes cloud business. And third, the company is absolutely floundering in cloud — they have no major clients, and consistently losing contracts to AWS.
In any company, especially a public company that’s accountable to shareholders and investors, compensation for executives must reflect the company’s performance. If the company is doing poorly, why should executives be rewarded with multi-million dollar bonuses?
The answer, at least in part, is that many executives (Rometty included) have realized there are ways to shortcut the system. For instance, by repurchasing company shares through stock buybacks, a corporate board can artificially inflate the company’s earnings per share prices. And since compensation bonuses are often calculated using EPS performance, a corporate executive can essentially manufacture their own bonuses.
IBM, in particular, uses buybacks to the extreme: 14% of the company’s revenue was used on stock buybacks within the first two years of Rometty’s tenure. Since 2013, IBM has spent more than $45 billion on buybacks, all while the company’s revenue and profit margins continue to decline. (Earlier this year, IBM’s board implemented new measures for its executives to abuse buybacks for their own financial gain.)
Since 2013, IBM has spent more than $45 billion on buybacks, all while the company’s revenue and profit margins continue to decline.
But it’s not just the buybacks that bother me. For the last five years, IBM has a weakening value proposition, declining assets, and laid off thousands of workers. Meanwhile, their $20 EPS “road map,” was an admitted failure, they completely missed the boat on shifting their mainframe business to the cloud, and the company also clearly has issues with internal controls, because of their track record with bribery cases overseas.
Some, including myself, believe the company even misled investors about their prowess in the cloud and half-baked “strategic imperatives” with misleading growth rates. And all while this was happening, IBM’s top brass was reaping rewards? That’s ridiculous. Martin Schroeter, the company’s CFO, made $13 million in 2015, up from $5 million in 2014. In fact, total executive compensation grew 57% from 2014 to 2015, all while the company’s core business declined.
I’m not the only one talking about this. Michael Hiltzik, finance columnist of the LA Times, wrote earlier this year that:
“For IBM shareholders, Ginni Rometty’s four-year reign as chief executive officer hasn’t been anything to go to Disneyland about. But her company has become a leader in one corporate category: board members willing to shovel incentive pay at a CEO turning in a mediocre performance.”
Now, if I was an IBM investor (which I am not), I’d have to wonder: Between the mediocre performance and all the big blunders along the way, why is Ginni still making $19 million per year?
—
Contact us: info@nightviewcapital.com
Disclosures:
The opinions expressed herein are those of Nightview Capital, LLC and are subject to change without notice. The company (or companies) identified or referenced herein is an example of a current or potential holding or investment target and is subject to change without notice. This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. Past performance is no guarantee of future results. Nightview Capital reserves the right to modify its current investment views, strategies, techniques, and market views based on changing market dynamics. This article contains links to 3rd part websites and is used for informational purposes only. This does not constitute as an endorsement of any kind.
Arne Alsin and Nightview Capital clients are currently long Amazon and also own options positions in IBM and stand to benefit if the trading price of Amazon increases and/or the trading price of IBM decreases.
Nightview Capital, LLC does not accept any responsibility or liability arising from the use of this document. No document or warranty, express or implied, is being given or made that the information presented herein is accurate, current or complete, and such information is always subject to change without notice. Shareholders and other potential investors should conduct their own independent investigations of the relevant issues and companies involved in this article. This document may not be copied, reproduced or distributed without prior written consent of Nightview Capital.
Nightview Capital, LLC is an independent investment adviser registered in the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.
Disclosure: This has been prepared for information purposes only. This information is confidential and for the use of the intended recipients only. It may not be reproduced, redistributed, or copied in whole or in part for any purpose without the prior written consent of Nightview Capital. The opinions expressed herein are those of Nightview Capital and are subject to change without notice. The opinions referenced are as of the date of publication, may be modifed due to changes in the market or economic conditions, and may not necessarily come to pass. Forward looking statements cannot be guaranteed. This is not an offer to sell, or a solicitation of an offer to purchase any fund managed by Nightview Capital. This is not a recommendation to buy, sell, or hold any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will be pro table, or that the investment recommendations or decisions Nightview Capital makes in the future will be pro table or equal the performance of the securities discussed herein. There is no assurance that any securities, sectors or industries discussed herein will be included in or excluded from an account’s portfolio. Nightview Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Recommendations made in the last 12 months are available upon request. Nightview Capital and clients are currently long Spotify (SPOT), and stand to benefit if the trading price of SPOT increases.
Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request. WRC-20-03
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IBM’s Executives Cash In While The Company’s Business Declines (Copy)
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I’m not a huge NFL fan, but I do know that if a team loses every single regular season game, their head coach should probably start updating his resúme.
In corporate America, however, that’s not exactly how things work.
Take Ginni Rometty, for instance, who took over as the CEO of IBM in January 2012. After overseeing 15 consecutive quarters of declining revenue and profit margins that fell 15 percent from 2014 to 2015, Rometty actually scored big.
How? She was awarded a $4.5 million bonus, bringing her total 2015 compensation to $19.8 million. It seems her poor performance paid off!
Note: Rometty took over as CEO in 2012.
Rometty is far from the highest-paid executive in America (she ranks about 56th according to Equilar, which tracks CEO pay) but Rometty’s compensation, in particular, fascinates me because of the sheer magnitude and scope of problems within the halls of Big Blue.
As I have reported in previous articles, IBM is currently struggling with several key (and some might say) controversial issues.
For one, the business is swept up in several overseas bribery and accounting scandals. Two, we strongly believe the company made a $2 billion mistake by buying SoftLayer, a small-potatoes cloud business. And third, the company is absolutely floundering in cloud — they have no major clients, and consistently losing contracts to AWS.
In any company, especially a public company that’s accountable to shareholders and investors, compensation for executives must reflect the company’s performance. If the company is doing poorly, why should executives be rewarded with multi-million dollar bonuses?
The answer, at least in part, is that many executives (Rometty included) have realized there are ways to shortcut the system. For instance, by repurchasing company shares through stock buybacks, a corporate board can artificially inflate the company’s earnings per share prices. And since compensation bonuses are often calculated using EPS performance, a corporate executive can essentially manufacture their own bonuses.
IBM, in particular, uses buybacks to the extreme: 14% of the company’s revenue was used on stock buybacks within the first two years of Rometty’s tenure. Since 2013, IBM has spent more than $45 billion on buybacks, all while the company’s revenue and profit margins continue to decline. (Earlier this year, IBM’s board implemented new measures for its executives to abuse buybacks for their own financial gain.)
But it’s not just the buybacks that bother me. For the last five years, IBM has a weakening value proposition, declining assets, and laid off thousands of workers. Meanwhile, their $20 EPS “road map,” was an admitted failure, they completely missed the boat on shifting their mainframe business to the cloud, and the company also clearly has issues with internal controls, because of their track record with bribery cases overseas.
Some, including myself, believe the company even misled investors about their prowess in the cloud and half-baked “strategic imperatives” with misleading growth rates. And all while this was happening, IBM’s top brass was reaping rewards? That’s ridiculous. Martin Schroeter, the company’s CFO, made $13 million in 2015, up from $5 million in 2014. In fact, total executive compensation grew 57% from 2014 to 2015, all while the company’s core business declined.
I’m not the only one talking about this. Michael Hiltzik, finance columnist of the LA Times, wrote earlier this year that:
Now, if I was an IBM investor (which I am not), I’d have to wonder: Between the mediocre performance and all the big blunders along the way, why is Ginni still making $19 million per year?
—
Contact us: info@nightviewcapital.com
Disclosures:
The opinions expressed herein are those of Nightview Capital, LLC and are subject to change without notice. The company (or companies) identified or referenced herein is an example of a current or potential holding or investment target and is subject to change without notice. This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. Past performance is no guarantee of future results. Nightview Capital reserves the right to modify its current investment views, strategies, techniques, and market views based on changing market dynamics. This article contains links to 3rd part websites and is used for informational purposes only. This does not constitute as an endorsement of any kind.
Arne Alsin and Nightview Capital clients are currently long Amazon and also own options positions in IBM and stand to benefit if the trading price of Amazon increases and/or the trading price of IBM decreases.
Nightview Capital, LLC does not accept any responsibility or liability arising from the use of this document. No document or warranty, express or implied, is being given or made that the information presented herein is accurate, current or complete, and such information is always subject to change without notice. Shareholders and other potential investors should conduct their own independent investigations of the relevant issues and companies involved in this article. This document may not be copied, reproduced or distributed without prior written consent of Nightview Capital.
Nightview Capital, LLC is an independent investment adviser registered in the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.
Disclosure: This has been prepared for information purposes only. This information is confidential and for the use of the intended recipients only. It may not be reproduced, redistributed, or copied in whole or in part for any purpose without the prior written consent of Nightview Capital. The opinions expressed herein are those of Nightview Capital and are subject to change without notice. The opinions referenced are as of the date of publication, may be modifed due to changes in the market or economic conditions, and may not necessarily come to pass. Forward looking statements cannot be guaranteed. This is not an offer to sell, or a solicitation of an offer to purchase any fund managed by Nightview Capital. This is not a recommendation to buy, sell, or hold any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will be pro table, or that the investment recommendations or decisions Nightview Capital makes in the future will be pro table or equal the performance of the securities discussed herein. There is no assurance that any securities, sectors or industries discussed herein will be included in or excluded from an account’s portfolio. Nightview Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Recommendations made in the last 12 months are available upon request. Nightview Capital and clients are currently long Spotify (SPOT), and stand to benefit if the trading price of SPOT increases.
Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request. WRC-20-03
Confessions of a Crazy Stock Picker Part II: Tesla and the Art of Long-Term Thinking
By: Arne Alsin | CIO, Nightview Capital Imagine a baseball game. The stands are buzzing, and the crowd is arguing about the winner. But here’s the thing: the players haven’t even taken the field. In my view: that’s Tesla today. Some investors, I’ve seen, are already treating it like the ninth inning. They’re debating whether …
Volatility: A Double-Edged Sword for Long-Term Equity Investors
It’s precisely these moments of irrationality that create opportunity.