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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 76.07-1.1%Dec 1 3:59 PM EST
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To: rkral who wrote (64746)9/19/2003 11:38:04 AM
From: Kirk ©  Read Replies (2) of 77400
 
You make a great argument for why stock compensation that vests immediately should be expensed immediately.

It is irrelevant to the case of issuing an option that expires worthless.

Please show a table how you would account for this.

<Pre>
End of Year You Employee Others
0 50.0 0.0% 50.0%
1 25.0 50.0 25.0
2 12.5 75.0 12.5
3 6.3 87.5 6.3

becomes:

End of Year You Employee Others
0 50.0 0.0% 50.0%
1 50.0 0.0% 50.0%
2 50.0 0.0% 50.0%
3 50.0 0.0% 50.0%
for no change

now show us how options that expire worthless but are expensed at $1MM would change this table:


End                        Begin    End
Year  Expense  Net Income  Shares  Shares   EPS
  1     $1MM    ($1MM)      2MM     4MM  ($0.500)
  2     $1MM    ($1MM)      4MM     8MM  ($0.250)
  3     $1MM    ($1MM)      8MM    16MM  ($0.125)


Your answer should show a company that is losing money and all that really happened was it issued some worthless paper to its employees that got them to work hard and probably prevented the losses reported from being larger.

The way I read it, people are saying there is an "opportunity cost" lost from giving the option to an employee vs selling it on the open market.

This is true. I just don't agree on how you value it or want to account for it. Figure out a better method and I'll agree to expensing.

Do you want your company to go into the busines of selling options or encouraging employees to increase shareholder value at a REASONABLE cost?
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