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Pastimes : Austrian Economics, a lens on everyday reality
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To: LLCF who wrote (55)12/12/2001 7:50:30 AM
From: Don Lloyd  Read Replies (1) of 445
 
DAK -

...I see no reason why you couldn't have a non-cash expense ledger offset elsewhere that moves depending on the value of the options... the same should occur in the capital accounts reflecting the dilution. Currently the capital accounts don't reflect the "delta" of the options outstanding, they just 'fully dilute' or not. Let's face it, to dilute properly you have to have an options schedule anyway with strike prices and expiration dates. ...

As long as whatever you do doesn't reduce the reported diluted EPS twice, more disclosure is fine. The imprecision of options is one of the reasons that I generally concentrated on giving away full shares for free as compensation, rather than options, as this would likely be a kind of worst case.

...When you issue an option in return for services it should affect cost of goods sold and the capital accounts no?

Not necessarily. Assigning cash valuations to non-cash compensation puts you on a slippery slope. There are all kinds of non-cash compensation. For example, a company located next to a ski resort helps attract and retain a certain subset of employees and reduces the cash compensation levels required. Hopefully, this would be too much of a stretch to expense for even the most ardent option expense supporters. This is part of the Austrian involvement. A benefit to one party of an exchange is not necessarily a cost to the other.

Regards, Don
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