Employee Stock Options - NQSOs & ISOs Message Board

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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs

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To: hueyone who wrote (85)	6/20/2002 1:28:37 PM
From: Gary L. Kepler	Read Replies (1) of 786

I am leery of changes to the rules of the game. The problems I would like see resolved are the abuse of executive pay and the lack of "effective" shareholder representation. The accounting treatment of options is only one part of the problem as I see it. My problem is that it took me ten years to readjust my portfolio away from real estate in 1986 with the change in tax laws related to ERISA. I had several master limited partnerships conservatively financed with generous cash flows that went bankrupt not because the business was flawed but because they could not be refinanced in an unfriendly, changing financial environment. In other words, the government changed the rules. And then the IRS had the gall to claim that income resulted from debt forgiveness and wanted additional taxes even though the capital risk was supposed to be limited to 100%. As a result, I have little faith in rule changes from Washington that could have massive adverse impact. I believe the use of options by public companies in the US is widespread. I am in favor of options as an incentive for all employees in proper proportions. I do believe that options have been abused by senior management and the total rewards to senior management needs to be addressed. The problem is not solely options. I am not anxious to see earnings depressed along with the stock market for the next five to ten years by an accounting change just to stop the abuse of stock options. The current treatment may or may not be best but it has been acceptable for ten to fifteen years. There has to be other ways of confronting the real issues. To change accounting treatment now could significantly depress the stock market for an extended period. Individual incomes would be depressed and government deficits would mount and interest rates would have to rise to the further detriment of business. Sounds like a death spiral to me particularly if we are to conclude companies like Cisco, Seibel, NTAP, etc. have never made money as some have suggested. To me this conclusion is surely not accurate. If true, then this country does have some fundamental problems. So if stocks are bad then does one shift to bonds and risk losing principal when interest rates rise? The real problem for me is senior executive compensation which favors the "star system" rather than be based on measured contributions. Boards are not exercising their fiduciary responsibility nor are the institutions which represent stock holdings in retirement accounts and in street name. There are no checks and balances with these institutions solely focused on short-term interests. In summary, changing accounting treatment might help solve the problem but it might also kill the economy. Aren't there better ways of addressing the real issues? Sorry for rambling but I am not a clear and concise thinker and thus do not post often.

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