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Technology Stocks : Intel Corporation (INTC)
INTC 36.20+0.1%Dec 26 9:30 AM EST
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To: Elmer Phud who wrote (178373)6/24/2004 6:24:15 PM
From: TimF  Read Replies (1) of 186894
 
Simple. Intel buys 2X shares @ $Y. At the same time they grant options on X shares @ $Y. No cost and no dilution.

That just transfers the cost from being a dilution hit on the shareholders to being a direct cash hit on the company. It costs Intel $2XY to buy the shares. If you didn't have the options grant you could have had the same result by only buying $XY shares. So the effective cost of granting the options is $XY. "No cost and no dilution" isn't accurate because there is a cost, XY dollars.

Of course if Intel didn't give the options it would have had to pay more cash directly to the employees. If the cash cost would have been close to, the same as, or more then $XY then Intel and its shareholders do well by the options grants. If however the additional wage cost incurred by not giving options would have been much less then $XY then Intel and its shareholders were hurt by the option grants. In practice it can be hard to calculate what the cost of doing things a different way would have been. Either way there is a cost involved in paying employees. That cost can be cash wages, dilution from options, or cash spent to buy back shares created from the option grants, but employees aren't free however you pay them.

Tim
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