STREET DOGS:
MICHEL PIREU: A foray into make-believe accounting
Warren Buffett on the claim that stock-based compensation is not an expense
From Warren Buffett’s 2017 letter to Berkshire Hathaway shareholders:To say "stock-based compensation" is not an expense is cavalier. CEOs who go down that road are, in effect, saying to shareholders: "If you pay me a bundle in options or restricted stock, don’t worry about its effect on earnings. I’ll ‘adjust’ it away."To explore this manoeuvre … join me … in a visit to a make-believe accounting laboratory whose sole mission is to juice Berkshire’s reported earnings….Listen carefully while I tell these enablers that stock-based compensation usually comprises at least 20% of total compensation for the top three or four executives at most large companies. Pay attention, too, as I explain that Berkshire has several hundred such executives at its subsidiaries and pays them similar amounts, but uses only cash to do so. I further confess that, lacking imagination, I have counted all of these payments to Berkshire’s executives as an expense.My accounting minions suppress a giggle and imme...
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