Letter Published in Financial Times

Sir, The headline on your March 4 reports read: "Dell adds $10bn to its share buy-back plan (March 4, 2005)." More accurate would have been: "Dell makes provision to settle a deferred compensation liability."

The article correctly said: "Companies also use stock buy-back programmes to offset the dilutive impact of shares issued to employees under equity-based compensation schemes." The key word is "compensation."

Over the past five years, Dell issued 267m shares to its employees in lieu of cash compensation. During this period, the company spent $14.2bn buying back 366m shares. Proportionately, it cost the company $10.6bn to buy-back the 267m shares issued to employees.

Employees contributed $2.6bn in the form of strike price payments on the exercise of stock options, bringing the net cost to $8bn. Only $6.2bn of the $14.6bn qualifies as a stock buy-back; the rest was the settlement of a deferred compensation liability. It would be more appropriate for the media to emphasize this distinction, especially as the accounting rules intentionally obscure this fact.

During the five years under review, Dell's free cash flow was ostensibly $18.6bn. However, free cash flow drops to $10.6bn if one adjusts for the $8bnb cash outflow related to the settling of the "deferred compensation liability."

Albert J Meyer