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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: stockman_scott who wrote (52512)8/19/2002 5:27:14 PM
From: hueyone  Read Replies (2) of 54805
 
Three Cheers for Andy Grove.

In Intel's news release they made a big show of trying to define the problem as excessive executive compensation and suggesting that expensing stock options was not the answer to this problem. But excessive CEO compensation is jsut one symptom of failing to expense stock options, not hte main problem. For most students of the stock options subject, the real issue is that there is an expense that is not being expensed....period. Whether Craig Barret receives all the options or whether the low level employees receive the options, there is still an expense that is not being properly accounted for on the income statement.

Expensing options would only lengthen the period before a company reaches profitability under generally accepted accounting principles.

Well by the same token, why don't we not count cash payments to employees in start ups as expenses either? After all, recording cash compensation lengthens their time to profitability. Or maybe young companies can pay their rent, insurance and suppliers with stock options and report 100% margins. The rational for opposing expensing stock options is just plain that silly.

For the sake of innovation, let's hope Congress doesn't bully the Financial Accounting Standards Board into mandating option expenses onto the income statement.

With this statement the journalist is really displaying his ignorance. Quite the opposite of what the journalist suggests has ocurred. Business lobbies paid off Congress to bully the FASB into not requiring expensing on the income statements in 1994. Senator Lieberman even threatened to get the FASB shut down for daring to propose that stock options be expensed on the income statements. FASB was forced to back off their proposal to expense options on the income statement and allow companies to report the fair value method of expensing stock options in the footnotes of the 10K, but they kept in their statement that they prefer companies to use the fair value method to expense stock options on the income statements. That position has not changed, and I am quite sure FASB would require companies to expense stock options on the income statements right now if they were not afraid of Congress bullying them not to.

Best, Huey
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