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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs
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To: Don Lloyd who wrote (721)12/15/2004 9:38:03 PM
From: Stock FarmerRead Replies (1) of 786
 
JS If, for example, the financial instrument is a certified check, that's compensation.

DL: The only exception to compensation is a company's own stock, or claims to it,...

Why should this be the "only exception"? One financial instrument is as good as another.

...and this SHOULD become a compensation expense when and if the company extinguishes the effective existence of the new shares by buying them back.

Here we disagree. The company does not incur a compensation expense by buying back shares from a random shareholder. Why would it incur a compensation expense by buying back shares from an employee? One share is as good as another.

The compensation expense becomes OBVIOUS when the company is forced to repurchase shares on the open market in order to maintain share count (vis-a-vis Cisco). But the expense occurred IN THE PAST when the share was issued and treasury was not increased to the degree it rightfully have been increased.

If a thief removes the jewelry from your house in the morning, and you don't discover it until the next day, would you claim that the robbery hadn't yet occurred? That's silly accounting.

When management loots the company, it occurs the moment the looting takes place. Not when it's time to recover.

When a company issues shares into the open market, it properly records an increase in assets as a financing activity WHEN THE SHARES ARE ISSUED. Not if and only if it ever repurchases them. To have one rule for shares issued to employees and another rule for shares issued to the general public is merely playing with semantics.
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