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Pastimes : Austrian Economics, a lens on everyday reality
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To: TimF who wrote (31)12/10/2001 7:03:10 PM
From: Don Lloyd  Read Replies (1) of 445
 
Tim -

If the company compensates its employees with options and then buys back the diluted shares the effect of the options is even more like that of just paying them money.

Thanks for the reply.

If they buy back the diluted shares exactly, the resultant share count certainly would be the same. The overall economic result depends on what stock price is paid in the buyback.

However, from an accounting point of view, the company still escapes the bottom line hit. I think that it is a bigger deal that companies do not have their earnings reduced no matter how much they pay for buybacks, than that options are not counted as an expense. I suppose that the real issue is how to value a company when it can neither be totally valued from its cash and its assets or its earnings. But this must be true even without any reference to option grants.

Regards, Don
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