I could talk up how the company's quality of growth isn't actually that bad. The balance sheet is sound, and the company's sales growth is in line with its changes in inventory and accounts receivable for the year. International Rectifier also looks to have strong potential growth possibilities in its computing and communications division and its energy-saving products division.
Unfortunately, none of the above matters one bit.
In another case of what investors can learn by reading proxy statements, International Rectifier proves that it likely doesn't care too much about its shareholders. This company is run foremost for the benefit of its employees. The proof is in last October's proxy statement, where the company proposed to shareholders an options program in which employees can exchange out-of-the-money options for options that vest at a lower price point. The conversion factor was on a sliding scale on which the options further underwater would be exchanged for fewer new options.
The exchange program was proposed because employees were issued options between 2000 and 2002 that were substantially above the prevailing prices in 2003 and most of 2004. In short, employees weren't making much off of these options. This is the same song and dance that has happened in the past at Amazon.com
My opinion here is that options are the icing on the compensation cake. They are a great sweetener to a deal, but they are compensation that is at risk. If you get options that are issued too high, so be it; that's the way it works. Besides, performing employees generally get more options at a later date anyway. Reissuing or exchanging options simply guarantees the portion of the compensation pie that is otherwise at risk.
You may think I'm just a curmudgeon who doesn't like to see people get paid or doesn't understand the competitive dynamics of the tech industry. But I've had and happily accepted stock options at a previous employer. The largest chunk of the options issued to me went almost immediately underwater, and no options were cancelled and reissued. It stinks, but that's life. That's why they're called options and not guarantees.
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