John,
I breathed a sigh of relief when Clark countered your earlier post distorting the costs related to employee stock options, but you come right back with your voodoo accounting.
<<Did they create a formal debt with all of the problems associated with servicing it? No! You are wrong. In fact they are legally obliged to issue new shares, in consideration for payment that will be less than the fair market value of the shares at the time the options are exercised >>
There is NO DEBT, the company GRANTS the employee the right to purchase a specific number of shares at a specific price, given a predetermined set of vestment criteria. These shares have previously been authorized by the board of directors and exist exclusively for this purpose. There is no direct cost to the company, if you want to compute the indirect or opportunity cost, it is the difference between the strike price and market price at the time the shares are granted, pledged as compensation. Any subsequent price appreciation in those shares is not a cost to the company, anymore than appreciation in shares they sold at IPO.
<<When the option is issued there is an ESTIMATED cost. When it is exercised, there is an ACTUAL cost. I merely tabulated actual costs looking backwards.>>
Again there is no direct cost to the company. The cost to shareholders is dilution. The dilution to existing shareholders, in its simplest form, is the percentage change in outstanding shares. Any appreciation in the granted shares doesn't adversely affect existing shareholders because their shares enjoy the same appreciation, the % dilution stays the same. In reality even the dilution isn't that straight forward because the options are used as compensation for key employees, retention of those employees increases the value of the company.
Using option valuation that has increased over a multi year period and calling it a cost to the company in the year and amount of exercise,is ridiculous.
Pete |
