From the Economist article:
"So if options are a real expense, where does the money come
from? The answer is: directly from the balance sheet, in one of
two ways, both of which do tangible harm to shareholders. When
employees exercise their share options, the company concerned
can do one of two things. The first is to buy its own shares in the
market. However, if it does, shareholders lose out: the cost to the
company of buying its shares in the market is higher, sometimes
much higher, than the price at which they must sell them to
employees. There is “a wealth transfer from shareholders to
employees, which will be especially large following periods of
unusual stockmarket gains,” write the two Federal Reserve
economists.
Second, if companies do not buy their shares back, there is only
one alternative: to issue more shares. This “dilutes” the holdings
of existing shareholders; they end up owning a smaller proportion
of a bigger pie. Moreover, if the number of shares rises, then to
achieve the same earnings per share, companies must increase
their profits more. |
