"Why not just treat them as what they are? On the day they're granted, the employee has income of their fair value and the employer has a compensation expense of that same amount."
It just does not make any sense. Why all these over-complications?
When options are granted,
an employee definitely has no income, whatsoever, and may
not have any ever, and therefore I can't see any reason
why should he pay any taxes at the moment of grant.
Likewise, the employer has not incur any expense, none.
The question arises only when the options are vested,
and the employee has elected to exercise them because
of their market value being higher than the granted price.
The problem is where the company is going to get those
promised shares, right?
They can print few more
certificates and fulfill their obligations, if shareholders
allow for this provision, with the stock dilution effect.
How much it can cost the company I have no idea, nothing
I guess, so there is no formal expense, all expenses
are on shareholder's pockets, evenly distributed.
Alternatively, they can buy back the necessary number of
their shares on open market, provided again that
the buyback was approved by shareholders. In this case
some real money are involved, e.g. $1B/q at Intel.
However, for some strange accounting rule, these are not
expensed when presenting official company's earnings.
What is the problem with accounting for these obvious
expenses? I do not understand, must miss something..
It can be fixed by a single paragraph change...
- Ali |
