OT ... Ali, re "when you "selling for free" options to your worker as a part of compensation for his labor, this activity becomes operating, not just financing."
Yes, fulfillment of the terms of an option agreement is economically equivalent to the company (partially) paying for employee labor with $X ... and then selling options for the exact same $X. Paying for the labor is an economic activity. Selling the options is a financing activity.
Not coincidentally, the FASB wishes to mandate expensing of the $X. Therefore, the options are not "sold for free".
re "From your wording it sounds like you still maintain that the difference between current FMV and option exercise price is still an "opportunity cost""
Relative to ESOs, it depends on when the intrinsic value -- "the difference between current FMV and option exercise price" -- exists.
From an accounting POV, the intrinsic value at grant is expensed, while the intrinsic value at exercise is not. If the FASB gets its way, the time value at grant would also be expensed. From an IRS POV, tax is based on the intrinsic value at exercise.
I introduced the "opportunity cost" terminology in the context of comparing the economic consequences of stock repurchases for a company which grants ESOs. The company can make a myriad of repurchase decisions, but the two most interesting ones are the CC and naked-call positions. If the CC position is chosen and the stock price declines, the company lost the opportunity to purchase the stock at the lower price. If the naked-call position is chosen and the stock price rises, the company lost the opportunity to "cover the call" at the lower price.
Each is an opportunity cost, but opportunity costs are not expensed AFAIK.
re "Could you please point out what other opportunity was missed between an employer-grantor, and his employee-grantee?"
To me, "opportunity cost" discussions could be an endless "what if" game. What if the company paid 100% cash? What if the company sold call options and "granted" the proceeds to employees?
Ron
P.S. ""I wonder why you continue to hit the carriage return"
I don't know, a stupid old habit I guess."
When citing (cutting & pasting) from your posts, editing out the line breaks is quite aggravating. |
