> Even the midsize companies (personnel-wise I mean) that issue large stock options don't buy back much, they don't have to <
If they've got 10% of their stock out there as options that are vested and are going to be exercized, then they are going to have to either buy back that many shares, or have their EPS number come down significantly as the options get exercized. Certainly it isn't as much in dollar terms as an Intel buyback program but the company itself is not as big either, so the impact (percentage-wise) can be similar, or even greater.
Most startups usually set aside a block of stock for the initial pre-IPO options, this is part of the up-front capital formation and as such generally doesn't trigger any buybacks, even after the company is public. However, later grants will force them. Doesn't matter how big or small the company is.
That said, this tends to be a much bigger issue for the fastest growing companies, which also tend to become the largest companies. Those that stick around as small businesses -- whether public or private -- tend not to see the kind of stock appreciation that makes this a huge issue.
Despite the hype to the contrary, this whole issue has almost nothing to do with actual startups, whose stocks are not publically trades, whose valuations are theoretical at best, and whose volatility cannot even be estimated. Plug one of those options into B-S, and you end up with something approximating zero.
I'm not a great fan of using B-S for estimating the value/expense of employee options. While it is a very powerful tool for valuing things in the shorter term, I think the assumptions start breaking down as you look out over the lifetime of a 7 year option. However, I do believe there's a real expense there, and it should be recorded and reported as part of overall earnings reporting. |
