Fernand - stock options as compensation are a complex subject , but I'll try to provide some simple answers ....
1&2 ) The " cost " of the options is in the dilution of the future earnings and ownership of the enterprise. This shows up when the options are exercised , naturally. The argument is that income for the current period is overstated , because the money which will be effectively "paid" to the option holder , in the form of shares , is not run through income as an expense in the current period , or ever. It is sort of like a hidden cost. If a company pays $1,000,000 this year to an Exec , that million is an expense. If it gives him the million through an option grant , that doesn't hit expense , but he walks away with the same million from the company.
3) There are various accounting texts that show you the mechanics of the entries; I can't think of an article I've read recently that goes into a lot of detail , but there are many , many articles from the past five years or so , as this is a very controversial topic for SEC , accounting types , etc. The bottom line is that the financials show you " XYZ made $48 million profit this year " but don't tell you that the Exec has an option package that is going to put $10 million cash in his pocket , and dilute the ownership for all current shareholders.
Try a search , maybe there is a better article around. |
