Tom Siebel effectively did this early in the company's life (pre-public);
Indeed this may not prove to have a major impact on the public markets since it was a private corporation at the time.
However, we're talking about a corporation with over 5 Billion shares outstanding and apparently some 800 outstanding options that have yet to be exercised (making MSFT's fully diluted status something like 6 billion shares, I believe), not a private start-up.
The crux of Bill Parish's argument is that much of the US pension system is invested in MSFT and many other mega-cap stocks. It revolves around a concern that echoes many of the issues that created the loss of confidence in the public markets after the '29 crash. It has the potential of destroying the pension plans of millions of baby boomers whose pensions are locked up in MSFT.
Again, it is not the issue of the usage of NQ options, but the excessive abuse of them to an extent that it subverts the fundamental soundness of the company.
But let's look at it this way. If I'm not mistaken, a company doesn't charge a discounted private placement against earnings (someone correct me if I'm wrong). As far as I can see it, a non-qualified option, not being an incentive stock option, is no different than MSFT selling their stock as a discount to market price in a form of employee direct investment program.
Most investors generally have the general perception that when a company prices a PP at a discount to market it is a rather negative sign that the stock is overvalued.
However, MSFT is able to access the wealth of its employees to offer what are essentially the equivalent of private stock placements, WITHOUT the normal 12 month restrictions from sale. Why else would MSFT or any other company offer them except as a means to raise money without going to the process of an IPO or secondary offering.
I would suggest the abuse in NQ could be seriously constrained by demanding that such stock is considered 144 stock, or unregistered securities and subject to a waiting period for sale.
Here's what Bill Parish has to say on the matter:
""Stock option programs are an excellent benefit and, while many technology firms have such programs, Microsoft has a unique ability to generate cash from its program due to its high profits on product sales. Based upon a review of Microsoft's 10Q report available from the SEC at www.sec.gov, they are on track to take a $15 billion tax deduction for stock option wages this year, much higher than total net income, allowing them to create almost $5 billion in cash in the form of lower taxes on product sales. This is valuable cash that is being dedicated to investing in new technologies and dominating one industry after another. An example is Transpoint, which was recently purchased by Checkfree and now positions Microsoft, as one of Transpoint's largest shareholders, to dominate the electronic processing of financial transactions. Retired Microsoft employees are similarly making venture capital related investments in many key new industries and have tight relationships with Microsoft.""
""Also forecast in the original study was a structural decline in corporate tax receipts and corresponding rise in individual receipts. Sunday 2/20/2000 David Cay Johnston of the NY Times highlighted this situation in an article titled "Corporate Taxes Fall, but Citizens Are Paying More." Strangely, Johnston highlighted Allied Signal and made no mention of Microsoft, even though this year Microsoft will transfer $15 billion in corporate taxable income directly to employees who have exercised options. This is almost as ridiculous as Worth Magazine highlighting McDonald's stock option program in a piece titled Floptions, highly critical of top management there when the overall impact on the financials was trivial compared to Microsoft.""
billparish.com
Now I dare someone to come out and tell me that MSFT taking a $15 BILLION deduction on stock option wages and applying that deduction against any tax liability on their earnings doesn't constitute "creative accounting".
That is $15 BILLION more in taxes that you, myself, and every other taxpayer have to come up with to compensate for when MSFT should be paying taxes on those earnings.
Regards,
Ron |
