That is kind of the beauty of options, no value unless you 'create' value... So long as option grants inspire 'innovation' ...
Now you're touching on an issue or concern I've had with options for some time, at least when it comes to big option grants to CEOs and others who make the big strategic decisions in public companies.
My concern is that, rather than inspiring innovation, big option grants inspire "bet-the-ranch" risk-taking. Think about it. If the CEO makes a big bet, his potential outcomes are "heads I win, tails you lose". He could score big, but he can't lose a dime, so he has an incentive to take big risks, perhaps even stupid risks.
OTOH, if he gets a restricted stock grant instead, Warren Buffett's preferred executive incentive, then he is faced with the same incentives and disincentives to risk-taking that face all shareholders. He can be rewarded for innovation, taking intelligent risks and succeeding, but if he bets the ranch on stupid risks, he stands to lose just like any shareholder.
This, of course, has nothing to do with accounting - it's the economics of human behavior.
Bob |
