John,
If, for example, the financial instrument is a certified check, that's compensation.
The only exception to compensation is a company's own stock, or claims to it, and this SHOULD become a compensation expense when and if the company extinguishes the effective existence of the new shares by buying them back.
The effect is that shareholders temporarily shoulder the compensation expense by giving up a portion of their ownership until such time as the company buys back the shares, if it ever does so.
We don't disagree that current practice allows management to loot the company without apparent penalty, but we disagree on
the appropriate solution and on exactly where the fault lies.
If the company only granted stock or paid compensation in the morning and only bought stock back in the same afternoon, but always did, then all the scenarios would have identical results at the end of the day.
At lunch time, the shareholders have seen their ownership share reduced, but by evening it has been restored and the compensation expense properly assigned IF buying back granted stock IS expensed.
Maybe there needs to be a deferred compensation expense entry, where the number of shares granted and not yet repurchased are marked to market every day.
When the annual reports come right out and say that stock has been repurchased with the express purpose of offsetting share count inflation, it is clear that management does not have the proper disincentives against grants.
Regards, Don |
