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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs
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To: Don Lloyd who wrote (718)12/15/2004 2:16:26 PM
From: Stock FarmerRead Replies (1) of 786
 
Here's another case you forgot to mention.

If a company gives a negotiable financial instrument to an employee as part of that employee's compensation, then the market value of that instrument, (net of any cost the employee must bear), IS compensation.

If, for example, the financial instrument is a certified check, that's compensation.

If the financial instrument is a share of some company, then the value of that share on the open market is compensation.

If the financial instrument is an IOU, then the value of that IOU on the open market is compensation.

Negotiable financial instruments are interchangeable.

But not to record it? Because the assets of the company didn't change? What kind of dim witted reasoning leaps to that conclusion?

Imagine a company which pays its employees 100% of revenue by allowing them to pocket everything before it goes into the till. What's the compensation expense? Zero?

The sillies who say "But the assets of the company were not decreased in the process" seem to forget that they also weren't increased in the process either! It's not the decreasing that is (or isn't) the expense in this case, but the not-increasing. Just like the cash not going into the till is an expense.

If the company had issued the share on the open market, then the treasury of the company would have increased by the market value of the share. By giving the share instead to the employee, the company avoids cash wages, at the expense of an ofsetting increase in treasury from the issuence of the share.

Which IS a compensation expense.
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