Chuz, can you walk us through the mechanics of a typical
options grant and how the company might pay for it?
Example, in 1990, employees are granted an aggregate of 10M
shrs at a strike of $1. Suppose they all exercise simultaneously today at $100. What really transpires from an accounting
perspective?
> Are the shares originally put aside in 1990 at a cost of $1
or less to the company?
> Or, When exercised, are the shares magically activated from
the authorized shares coffers (like printing
money), given to the employee who sells them into the open
market increasing the "basic" number of shares outstanding?
> Does Dell purchase shares on the open market for $100 (unlikely)
and award them to the employee?
Or something else...
Re: I have a better idea. Pay bonuses in cash based on
performance criteria that make sense.
In an ideal world, that would be great. Unfortunately,
establishing individual bonus metrics that tie together
seamlessly with other individuals for the desired
synergistic outcome is virtually impossible. Performance
plans would have to be re-written every-single-month to
stay relevant. I've seen the result of performance plan
tunnel vision by employees and it can stifle innovation or
risk taking.
Not that performance plans aren't important, they are. And
cash bonuses for meeting pre-defined goals are a valuable tool.
However, bonuses have traditionally been reserved for the management
ranks and do little to inspire or motivate the bulk of the workforce
making < $50,000/year.
A workforce who's interests are in line with the shareholders by
virtue of ownership is analogous to Dell's direct model. Any other
form of reward is simply less efficient.
The question here is the option grant the costliest form of award?
If the costs are extreme, it still may be worth it for the
talent you retain... I'm a firm believer that you get what
you pay for.
Anyway, I hope you can shed some light on how these options can
be accounted for and what they might actually cost a company like
Dell.
MEATHEAD |
