A recent article in The Wall Street Journal (subscription required) reported that executives at shaving giant Gillette
Remember that you shouldn't draw too many conclusions from insider selling. Sure, a company bigwig might be unloading shares because she knows that the firm is headed for disaster. But it's also quite likely that she simply needed to sell some of her shares to raise a little cash -- perhaps to diversify her portfolio, perhaps to buy a house, perhaps to pay Junior's college tuition bill.
When it comes to insider buying, though -- well, there are fewer possible conclusions to draw. If someone buys shares of stock, it's pretty likely that he thinks the shares will appreciate. And if he happens to know the company fairly well because he works there, then this flag just got greener.
But back to Gillette. A few weeks ago, CEO James Kilts bought $600,000 worth of stock, upping his holdings in the firm by 40%. He also bought additional shares earlier in the year. And several other company executives or directors also bought meaningful amounts. That's all pretty heartening.
Still, don't get too excited. As the Journal reports, Kilts already has been awarded several million stock options, so if the stock does rise significantly, he stands to profit wildly. He also has a new wrinkle in his employment contract, whereby he'll earn an additional $1 million for every dollar the company's stock rises above $32.38, its price in June.
That sounds good, linking an executive's incentive with shareholder interests. But this kind of deal also harbors danger. Some CEOs with similar incentives have thrown integrity, rational accounting, and long-term company value out the window in a drive to prop up their firm's reported earnings and share price at any cost.
Gillette's isn't exactly cheap. The company has been turning itself around. Perhaps it will present a compelling investment opportunity one day, if you keep an eye on it.
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