Don, insufficient information to answer definitively.
For example, is (or will) the company repurchase its shares on the market? Is there even a market? If so, what value does the market place on the company's shares? If not, what is the most likely valuation of the company?
Indeed, the answer depends entirely upon what the MARKET value of any shares granted happens to be, which is a risk-weighted element. Amongst other things. It seems that your question is a trap for the unwary anyways. And entirely irrelevant.
You seem to be arguing from a point of view that discounts risk to zero and argues from the point of absolute foreknowledge. Which lacks a certain appreciation for how the real world operates.
As much as you might want to argue otherwise, we don't know how many dollars Qualcomm will pay me per share for the Qualcomm shares I hold. But the best guess by the market today is somewhere north of $43. So if Qualcomm hands me another share, for whatever reason, I am well within rational bounds of behavior to think I've just been given the equivalent of 43 dollars. And so is everyone else. Including Qualcomm. Who could just as easily have sold the share on the open market and increased their treasury by $43.
Except of course for you claiming "wait a minute, it can't have any value right now because we don't know for sure how much Qualcomm is going to shell out for the thing when they buy it back from you."
Which is just a long winded way of saying "Estimation is neither possible nor desirable". Both of which are false.
Estimation isn't a new idea. Accounts receivable are an estimate. So are accounts payable. So is work in progress and finished goods. So is the value of non-cash assets. Plant, property & equipment... name something in a company's ledgers that isn't an estimate and you'll be talking about cash. And we gave up cash accounting for businesses long ago.
The facts here are clear. When the company grants and issues a share it is giving away value. We know it is an obligation by the company. We just don't KNOW for certain what that value will be. You have argued that it's better to leave the guess on the books until we know for sure. Which might be an interesting academic approach, but is inconsistent with how everything else is done.
So far, your argument for not expensing equity compensation boils down to holding shares in a state of exceptions. You would have us treat one share differently than another - depending on who holds it. You would have us value a share in a public company differently depending on which entity holds it. You would have us account for shares only with certainty rather than estimate like we do with everything else.
Occam's razor suggests a simpler approach. When you give something to someone as part of their doing work for you, you should record the value of that something (to you and to them) as compensation expense. Pretty simple. Whether it's a share or a dollar or a copy of Norton Antivirus.
And the way you figure the value of the something you gave them is how much you (or they) could receive if you (or they) sold it on the open market.
You might want to come up with another rule (and you're going to have to in order to conclude that equity compensation shouldn't be recorded), but that's the rule of third party valuation according to GAAP. |
