Having "Monopoly Money" -- To Pay Mattersight Executives' Taxes -- Is Sweet!

Let's be clear here -- when a public company grants restricted stock, the executives pay for it with (only) their services over time. When the restrict stock vests, the executive has been enriched by the full value of the stock (as he or she paid no cash whatsoever for any of it). Thus, the IRS is owed taxes on the vesting -- at ordinary income rates.

Yesterday, the top executives of Mattersight reported "paying" that tax, by selling some of the same vested stock, as of May 31, 2012, back to Mattersight, in an off-market transaction, at $7.01 a share. Again, no cash from the executives -- and now they hold the shares free and clear. This is true of CEO Kelly Conway, CFO Bill Noon, EVP Chris Danson, and GC Christine Carsen, among others. Of course, this is a cash obligation then paid by the company to the IRS. [A more-jaundiced view would hold that the original grant size was effectively adjusted upward, so that the full intended value would be transferred to the executive, net of all tax obligations.]

This is a common practice at public companies, but when a company is underperforming, it sure looks like an overreaching use of the company (and its assets) -- solely for the benefit of the executive crew.

Finally, of course, allowing the restricted stock to vest, immediately after management committed a material accounting "error" -- and that error has (at least temporarily) enhanced the price, but not the long-term value, of that same stock -- strikes me as odd, indeed.