Amy, of course options and the amount expensed on the income statement are related. That is the point.
Has it ever occurred to you that maybe the use of stock options is excessive? The whole argument that if they are expensed then the usage will go down suggests this to be true!
The logic is simple. Opponents of reform claim that by showing a cost to shareholders that shareholders will demand companies curtail the use of options. This implies that (a) the cost shown on the income statement has an effect on shareholders perception of the cost of options, and (b) shareholders will make decisions about allocation of options based on this perceived cost.
Let's accept this very sound logic for a second. And then ask what happens when the cost of options is shown as zero. Surely therefore, shareholders have been making decisions about allocation based on a perceived cost far less than the real cost!
Oh, maybe the thing has to do with the proposed reforms over stating the cost? You know, if shareholders are shown more cost than there really is then they will cut options to below the "appropriate" level.
But then what if the method being used causes an UNDER statement of the cost? If shareholders are shown less cost than there really is, then by the same token won't they authorize options above the "appropriate" level?
The whole argument actually supports reflecting the cost of stock options on the income statement.
Either that, or agreeing that whatever the cost on the income statement it won't matter.
Because if shareholders are already authorizing appropriate levels of options when the cost is shown as zero, then you have to admit they have been appropriately discounting the cost of stock options shown on the income statement. Because we KNOW it's wrong: the cost is not zero.
So to get the right number being allocated even when the cost is =wrong, then surely allocation will still be right when a different (also wrong) number is included, yes?
Could it be just a matter of degree? Let's see. This is the Cisco thread, let's use Cisco as an example. We've shown that the total difference between revenues and all costs including wages reported over the past six or so years has been about 8 Billions. Meantime, as I showed earlier, employees have been *motivated* to the tune of an additional 18 billion that didn't show up on the income statement. They took home 18 Billion through the exercise of stock options! In other words, the cost of getting 8 Billion in profits depended on whatever wages were earned, PLUS an additional 18 Billion in *motivation*. That's a lot of motivation. No wonder the parking lot is full at night.
Now, either that motivation is excessive, or it isn't. If it is excessive, then we should cut it back. If it isn't excessive, then the business they are in costs more to deliver than it generates in profit. By more than a factor of two. No wonder they don't have many competitors. And we should all give a moment of silence for whomever ends up holding the shares last.
Putting aside what other people think, and setting aside whether your opinion might be harmful to your pocketbook, what do *you* think? Has the current system led to abusive practice?
Just because we personally benefit from abusive practices doesn't mean we should condone them.
John |
