John,
<<I never said that the COMPANY incurs a cost. I said that SHAREHOLDERS incur the cost. You seem fixated, like others, on the fact that since the Company doesn't incur the cost that it doesn't exist. >>
I believe you have said the company incurs a cost, but you certainly have said the company has a debt. You will have to explain a debt with no associated cost, and the wave theory won't cut it.
I'm glad we agree that employee stock options are not a direct cost to the company. Now let's use your hypothetical to demonstrate dilution to shareholders.
<<Now, our make believe shareholder doesn't actually get any wealthier when the market bids up the price of shares (he still owns the same asset, Qualcomm). He also doesn't get any poorer either when the stock price plummets. Mq will appreciate this idea. His wealth only changes when Qualcomm's assets actually increase or decrease.
Now, if Qualcomm issues a share and he buys it directly from the company, he isn't any richer or poorer. Money flowed out of his Cash pocket and becomes a Cash asset of the company. Which he owns all of. He loses some dollars of cash, gets the same dollars of asset. And thus is no richer or poorer.
If however Qualcomm issues a share to an insider for $1.00, and our Shareholder then buys it from the employee for the market price of $32.00 then the employee ends up with $31. Our Shareholder is poorer by $32 but richer by the $1 that the company gets. So our Shareholder is poorer by $31. >>
When the company issues a share to an employee ( love your reference to insider, sounds ominous) the existing shareholder suffers dilution in ownership equal to 1/(shares outstanding) and he is no longer the only shareholder. The value the company receives for the issued share = strike price + ( % of the employees services attributable to that compensation), When our hypothetical shareholder purchases the share from the employee the dilution has already taken place and should be reflected in the stock price, he is buying a diluted share.
My problem is with you taking appreciation after the stock option grant and calling it a cost to shareholders. The potential cost to shareholders happens at the time of grant and is equal the discount in strike price to the value of the stock.
<<Just because the cost doesn't accrue to the company doesn't mean that it doesn't accrue to the shareholders.>>
The cost doesn't accrue. The cost is determined at grant and is delineated in shares.
<<It may be completely foreign to you. But just because you don't understand something doesn't make it incorrect.>>
By the same token, just because I think something is incorrect doesn't mean I don't understand.
I'm going fishing!
Pete |
