PSFT - Fiscal 1998 - Discussion for the next year Message Board

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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year

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Oct 29 5:00 PM EST

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To: Chuzzlewit who wrote (2097)	9/3/1998 4:16:00 PM
From: Tom Smith	Read Replies (1) of 4509

Chuzz, RE: Bottom line: the use of options for employee compensation is a bad system. We've both been on the PSFT threads for over a year now and this is the first statement you've made that I clearly disagree with. I think Congress should pass a law giving tax breaks to companies which compensate employees through options. The benefits (to the company, the employees, the shareholders and the economy in general) are numerous and the problems are limited to only one. See below. The company and the shareholders benefit because key employees have a vested interest in (a) staying with the company and (b) improving the company's performance and stock price. Options also reduce the cost of employee compensation by delaying it. i.e., The company gets the current value of the employee's service while not having to "pay" the compensation until the option is exercised, usually several years later. The employees benefit because options (a) are more profitable than cash, assuming the company's stock price increases over time (as most do, including PSFT) and (b) are taxed at a lower rate than cash compensation. The economy in general would benefit tremendously if ALL employees were paid a portion of their compensation in the form of stock options. The nation's savings rate would increase since the options could not be spent as quickly as cash, thus enforcing a de facto savings program on every employee. Employees would also be very unlikely to organize strikes against their employers if such an action would deflate their options' value. (Would the GM, UPS, or Northwest Airlines strikes have occurred if their employees were holding a significant number of stock options?) The only down-side to this arrangement is, as you mentioned, the tendency of some companies to reprice the options whenever the stock price drops significantly. I agree that this is a bad practice and I think it should be disallowed. I suspect you have different thoughts on this subject, so I'm looking forward to your response. Tom

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