If two different shareholders were each granted the option to purchase one single share of Q, but one shareholder was granted the right to purchase Q at $25 per share and the second shareholder was granted the right to purchase to purchase Q at $32 per share, the estimated option expense would be different for each case, even while the impact from dilution of adding one more share would be identical in each case.
Nope, the expense to the company is contained in the dilutive affect. The expense is the dilution the outstanding shares may experience if the options get in the money. The chance of dilution of the $25 option are probably higher than the $32 option. But if the shares are at, for example, $2 and the options last one year the "expense" and likely dilution are both zero, whereas if the shares are at $40 when the options were issues, the likely dilution of both options are one share, and the "expense", if that is what you want to call it, are $15 and $8, but if you count both the dilutive share and the "expense" you've double counted. At least that's how I understand it.
So stock option expense must be calculated separately from dilution effect.
Stock option expense doesn't need to be counted at all because the negative affect of options is factored in by dilution would be my answer.
"By the way, I have never once seen this argument (double counting) asserted in any of the numerous articles I have read regarding expensing stock options, many of which have contained arguments from both sides.
Just shows you how many people are out there writing about things they don't understand!
Elroy |
