John,
...The trouble with all of this, beyond the silliness of Berkeley's arguments, is that no one is saying stock ownership and stock incentives for employees are bad things. It's the accounting for stock options that's the problem. Restricted stock -- shares granted outright to an employee with limits on sale -- would create exactly the same incentives for employees....
Designated fool Meehan fails to realize that it is the expensing of actual stock that is the egregious error.
If you have $100 and you have an expense of $10, you would expect to end up with $90. This is somehow beyond the understanding of the FASB.
If stock grants are expensed, and they are, giving away stock would be expected to decrease the value of the company. It doesn't because the FASB somehow manages to correctly realize that a company's own stock is NOT an asset to itself.
If stock is expensed as it is given away, then it would only be logical to declare an income, or at least a negative expense if an executive were ever to give stock back to the company, as unlikely as that may be. But the stock that would be returned to the company is of no value to the company itself and the executive might as well burn his shares as the resultant anti-dilution of other existing shareholders is identical in both cases.
If a company gives away luxury pens to all its employees, it IS an expense because it has to buy them first. If AMD were to give its employees INTC shares, it would also be an expense that depended on how much had to be paid for them on the market. However, if AMD gives its employees AMD shares, the only effective expense is the paper and the electricity for the copy machine.
The underlying problem is that accountants do not understand which side of their bread is buttered on. The accounting function is paid for by the shareholders of a particular company and is supposed to reflect a true reality of that particular company. As much as they would like it to be so, accountants are not being paid to determine the weights to be carried by thoroughbreds in a handicap race. Comparison between unique companies is NOT the goal.
Regards, Don |
