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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs
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To: R2O who wrote (696)8/2/2004 9:08:34 PM
From: rkral of 786
 
R2O, re "But what is compensation?"

Employee compensation is payment for services rendered. Significant payments include cash salary, cash bonus, stock grants, and option grants. You can include awards, plaques, and parking spaces if you want ... but they are clearly much less significant.

re "do proceeds from public offering make it to the income statement? "

Not AFAIK. The proceeds "flow" to the balance statement as cash-flow-from-financing ("CFFF").

Proceeds from "selling" stock options to employees should also be treated as CFFF. The company and employee exchange (barter) stock options for services. This is economically equivalent to the company paying $X for the services ... and the employee paying the same $X for the options. The former should be expensed reducing net income, and thereby reducing cash-flow-from-operations ("CFFO"). The latter should be included in CFFF. The net of the two is $0 ... consistent with the term "non-cash compensation".

re "But then the proposed 'expense' of options isn't tax deductible, is it?"

Correct, it is not. But accounting rules are not necessarily the same as tax rules. However, accounting must include the effects of taxes.

I'll try to get to the other questions tomorrow.

Ron
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