Issue #12 - Becareful of organized labor

In this section, I interpreted that buffettology is focusing on the relationship between the company and its employee. A group of unhappy employees can distrupt business if they go on strike when management does not fullfil their demands or if they constantly demand for salary increment. A powerful and demanding employee organization is not an attractive factor from the shareholder's perspective.

At least for me, there is not quantitative method to analyze a company and its employees' organization (if any). One way is to google for employee organization on the internet. A quick search online found that SP Setia is voted one of the top ten best employer in Malaysia (Click here for full listing.).

Many companies offer employee stock option scheme (ESOS) as a benefit for their employee. From this point of view, employees are quasi-owner of the company. Issued stock options are accounted for when calculating the weighted-average outstanding shares, which in turn are used to calculate EPS (refer to Issue #9 for EPS calculation). The more stock option is issued for the employee, the bigger the number of outstanding shares and the smaller the EPS number for given earnings.

Below is a list of ratio of issued stock option (under ESOS) to outstanding share for SP Setia and Island & Peninsular. A small number is

Ratio of issued stock option to outstanding share
Year     SPSETIA     IP
2005     1.08%       0.63%
2004     0.92%       2.58%
2003     0.20%       0.00%
2002     0.14%       0.07%
2001     0.12%       0.29%
2000     0.58%       0.18%
1999     0.08%       N/A

Average  0.45%       0.63%

Although SP Setia has a lower average number, its ratio has been steadily increasing for the passed 5 years and should taken noted as a 1% of issued stock option contributes to a 1% reduction in EPS.