Re: Using options as compensation
The survey you cited lists computer engineer ($70,000), computer systems analyst ($53,000), and computer programmer ($38,000). This indicates that you earn more money as when you have more experience, which is also true for a lawyer. The proper comparison is between a new lawyer earning $58,000 that is earning 50% more than the new $38,000 programmer, which is even more than the 38% premium the new $40,000 1986 lawyer earned over his $29,000 engineering counterpart. This indicates the lawyer shortage is getting worse, at least relative to engineers.
Americans loved to complain about lawyers in 1986 and they love to complain about lawyers today. Nevertheless, we prefer to sue our next door neighbor rather than develop a friendship or even learn his name. If we hated lawyers, the Nolo Press bookstore at www.nolo.com would be as popular as www.amazon.com.
Intelligent young Americans are clearly making rational business decisions when they shun engineering in favor of law. There will always be a "shortage" as long as the pay is poor. A house in San Carlos with 1200 sq. ft. of living space costs $500,000 and Oracle shouldn't be surprised that it's difficult to recruit new engineers to work for $50,000 in Redwood Shores.
I'm always skeptical when I read that there's a "shortage" of labor in a profession. The manufacturers in Colorado complain of a shortage of blue collar workers willing to accept their $10/hour jobs so that the state will allocate more money to the 2 year vocational colleges rather than have employers foot the bill for staff training. Bill Gates and Scott McNealy testify before Congress of a shortage because it's cheaper for them to hire foreign engineers than it is to lure young white collar Americans away from the law profession with higher engineering salaries.
Wind River and any other software company can hire as many engineers as they desire as long as they're willing to pay the market rate. Even the biggest software company in the world, Microsoft, hired thousands of engineers and increased their R&D staff by 50% when it became apparent that Netscape and Sun were threatening to put them out of business.
There's nothing magical that forces a company to issue stock options. Wind River can hire an engineer with 10 years experience for $100,000 cash or $90,000 cash plus $10,000 worth of stock options. If LEAPs were available for Wind River, it wouldn't make any difference to the engineer which method was used. In fact, he'd probably choose 100% cash because he could invest the $10,000 in LEAPs or stocks in any one of thousands of companies, rather than have his fate tied to the market's opinion of Wind River. Or, he might enjoy the freedom to invest in a mutual fund or even to refrain from speculating in the stock market at all.
Sun Microsystems has grown so fast in the last 14 years that it's now the third largest company headquartered in the Silicon Valley. They've done so without issuing stock options to any employees except the top executives whose performance might effect the stock price. Nevertheless, they have no recuiting difficulties and their employee turnover is no different from other technology companies.
According to the Sun 10-K at sec.gov, if the fair values of the options granted in 1997 had been recognized as compensation expense, the pro forma effect on net income for 1997 would have been $1.88/share compared to the reported $1.96. This is a very sharp contrast to the pro forma loss at Wind River that had been reported as profitable.
The proper way for Wind River to account for employee compensation is to admit that the engineer costs $100,000 regardless of pay method. Counting only the $90,000 salary is dishonest and the SEC has remedied that deficiency by requiring SFAS 123 annually. They should improve it by requiring quarterly disclosure in earnings releases and 10-Q documents. Honest accounting once a year isn't enough. |
