I've heard that Gates instead took shares of stock over the years.
Hi Mike, I don't know where you were headed with that statement, and I still don't know whether Gates took shares in payment in the past, but the very concept of granting shares rather than issuing stock options raises some interesting points that you are already probably aware of. When executives are granted shares of restricted stock, the company values the shares at market price on the day the agreement is made, and subsequently amortizes this fixed expense on the income statements over the restricted period, as far as I have been able to ascertain. This accounting treatment for restricted share grants has been generally accepted and going on for years. Yet there are no claims that the cost of issuing restricted shares will be reflected in diluted shares without showing an expense on the income statements, and there are no claims that expensing restricted share grants on the income statements results in "double counting". Additionally, there is no adjusting of the expense to reflect subsequent changes in share price over the restricted period. Restricted stock is expensed on a "fixed" accounting basis. This long time accepted accounting treatment for grants of restricted stock resides in direct contradiction and rebuttal to several of the more popular message board arguments to avoid expensing stock options---that of supposed "double counting", that the cost of stock options is fully reflected in diluted shares, and that calculating a one time stock option value with Black Scholes while neglecting to adjust value for subsequent changes in share prices is inconsistent with accounting principals.
Nevertheless, this is not to say that a "variable" accounting method, adjusting for current share price, could not be preferable in this instance. In my opinion, however, the important thing is to start reporting expense on the income statement in some manner or another for the purpose of being imprecisely correct rather than being precisely wrong---as is the case now when companies report the value of stock options as zero.
JMO, Huey |
