Carl -
[...If what you are saying is that options are an entirely dilutionary contribution to a company, rather than a profit or loss item, then I can see your point. But the problem with taking that attitude is that you will be unable to distinguish between companies that are making excellent profits by producing goods that are worth more than the cost of goods sold, and companies that are successfully selling (diluting) their shares. I really doubt that the Austrian economists would have had great difficulty making that judgement.]
Austrian Economics comes into the picture because of the argument that because options can produce a large reward to the employee, there must be a large cost somewhere to offset it. Hopefully, I was able to make the point that values to one side of an exchange do NOT require offsetting cost to the other.
From my POV, the real accounting issue is that the company and its owners are separate entities. All changes of ownership are positive or negative impacts on the shareholder owners. For cash flow items to be retained in the company, they cannot be carried on the shareholder side. As far as option grants go, they are granted by the shareholder owners through the agency of the management, and all of the negative impacts also fall on the shareholders. The cash flow advantages all fall on the company side where they indirectly benefit the shareholder owners as well.
As far as I can see, the drive to add option expenses to the income statement is a result of a childish desire on the part of the market to want to reduce all the complexity of a company to a single number, the EPS. Even this would be accomplished if the diluted share count were to count all the granted options fully. Investment success can and will not ever be able to be reduced to a mechanistic reliance on a single number.
There is no special olympic gold medal for best company financial performance, handicapped for equivalent cash salary expense. The only payoff is return of and on investment to shareholders.
Regards, Don |
