I'll be the first to say, no, I really don't understand corporate compensation beyond the basics. But I think we can agree that if executives are paid huge salaries and bonuses in cash, and other forms of comp subject to short-term fluctuations in value (shares in company stock), the incentive for any given exec to push for the long-term welfare of his corporation is possibly less than his incentive to push for the short-term stock price, even at the expense of the long-term welfare.
So if the executives all push for short-term stock price gain, through fraud if necessary, while planning to bail out and either flee the country, cover their tracks, or both... well, they might just get their golden parachutes, and be able to sell all their shares at the peak of the company's traded value, and walk away with ridiculous amounts of money, while the company burns. Customers get shafted, workers not in on the conspiracy get shafted, the taxpayer gets shafted because there will have to be a government investigation that may or may not ever recoup the expenses in fines... etc.
So here's the idea.
Options, as I understand, are the right to purchase x shares of stock, at y price, in z number of months or, more typically, years from now. They have a built-in delay.
My understanding of the way the above is put to work is as follows. (CYA: Please be aware, furthermore, that I use Daily Kos Inc. only as a mildly humorous example and do not mean to imply any equivalence with Kos Media LLC; nor do I intend to suggest that it will be publicly traded or that its value will go in any particular direction.)
Let's say I'm issued options worth 100 shares of Daily Kos Inc. stock, at $40 per share, that will vest or mature in ten years. So, fast-forward ten years, the options are ready: if I exercise the options, I pay $400 and receive 100 shares of Daily Kos Inc. stock. If DKI is worth more than $40 per share, this is a good deal: I pay $400 for more than $400 would normally buy. On the other hand, if DKI is worth less than $40 a share, I would be silly to pay $400 for assets worth less. So I would only want to exercise the options if DKI stock is above the price per share of the options, or will be very shortly.
So, then. The idea is that by making long-term options a much larger portion of executive compensation, company boards would be strengthening the incentive for execs to push for slower, more long-term growth, or at least long-term maintenance of value, rather than driving its stock price for an immediate peak at the possible expense of the company's long-term value.
Thoughts?