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Biotech / Medical : Agouron Pharmaceuticals (AGPH)
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To: per strandberg who wrote (3850)2/19/1998 11:12:00 AM
From: Biomaven  Read Replies (1) of 6136
 
<<Agouron has filed to SEC an "Employee Stock Option Plan",
with 1 million shares (to be issued or repurchased) in employee options.
Anybody: Is this good/bad/of no importance?>>

Employee stock options are what I do for a living. If misused they can be bad for shareholders, but in general (like democracy) they are better than all the alternatives. Current accounting make option grants at the current stock price "free." Dilution only starts to happen if the stock price appreciates above the grant price.

Tucked away in the footnotes there is an accounting of what earnings would be if you try to value the option grants as you would a quoted option. This FAS 123 footnote is imperfect in many ways, but it does give some notion of the additional compensation costs stemming from new option grants.

The bottom line, however, is that companies that freely award options to a broad base of employees tend to perform better than companies that use them narrowly or not at all. Essentially stockholders are giving away some of the upside to employees, but are getting some current and downside protection by paying employees less currently.
Further, and perhaps more important, broad-based option grants in a properly designed plan can make employees "think like shareholders."
In general I only get concerned when I see mega-grants going to a few executives. AGPH's option grant policy seems to me to be reasonable, although I haven't checked recently.

Peter
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