Friday, July 18, 2008

Accelrys Looking to Fool Shareholders -- All of the Time

  1. Accelrys (ACCL-$5.01), a maker of scientific business intelligence software, recently filed a preliminary proxy to revise their 2004 stock incentive plan. After incurring losses for the last two quarters, the research software firm is looking to remove Award Limits to Named Executive Officers.

    As of now, the cap on awards per individual is as follows:

    1) 50,000 shares of common stock;
    2) 300,000 shares as stock options ;
    3) 100,000 shares in other stock appreciation rights ;
    4) 50,000 shares as restricted stock ; and,
    5) $500,000 cash

The current market valuation of Accelrys would equate to $3.0 million in awards per participant in the plan. Regardless of price, the current cap on awards is also equivalent to almost 2 percent of the outstanding shares in the company.

In the preliminary proxy filing, the company states they want "…to remove the Award Limits in order to provide greater flexibility in awarding equity interests in the Company to key personnel. The Board believes the elimination of the Award Limits under the 2004 Plan will allow the Company to offer more meaningful incentives for retaining and motivating existing employees, directors and consultants and will provide an important tool for recruiting new talent."

If employees, directors, or consultants are being paid more money, than Accelrys would supposedly be able to keep people longer and recruit more employees. I am not convinced, however, that this would have any effect on the company’s ability to increase shareholder value. In the last 10 years, the company has increased their shares outstanding from 19.9 million shares in October 1999 to 26.8 million shares as of the end of the 2007 fiscal year.

During the same time stockholders, equity went from 72.8 million to 75.2 million. The 3.3% increase in stockholders equity over that time has underperformed risk free treasury bonds. Increasing salaries at the company and proposing to essentially increase dilution of the shares does little to address the company’s abysmal performance. Without any radical change in the company, an increase in awards only lends more hurt to shareholders.

The company says in their proxy that the plan "will remain virtually identical to the 2004 Plan as it currently exists...." As noted, the one listed exception is the elimination of award limits on compensation.

You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time. ~ Abe Lincoln

Removing compensation award limits in an incentive plan—and then say the new plan with no compensation limits will remain virtually identical—is misleading. There is nothing necessarily wrong with this plan nor am I questioning the legality of it. I am just simply making the basic point that the company wants to give more money to their employees, directors, and consultants while shareholders do not made a dime.

Columnist Eric I. Schleien does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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