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 (2109)	9/3/1998 6:43:00 PM
From: RetiredNow	Read Replies (1) of 4509

"If the goal were to motivate employees, then the options would be for restricted stock (preventing the sale on the open market for a certain number of years). The fact that options are exercised and the stock immediately sold mitigates against long-term incentives. " Chuzz, when people receive options they are priced usually around the date of hire. So the value of the options (mkt value - option price times # of options) at my hire date is near to zero. They only become valuable as the stock price increases. So if you think people are flipping options, you must be mistaken. Most options also vest over 4 or more years. So the value of options during the first year are usually zero because most people don't get a vesting percentage until the first year has passed. I can tell you from personal experience that options as an incentive do work. Recently, I had the choice between doing consulting work for an incredible amount of money or accepting employment with a firm at a considerably lower salary, but getting options as well. I did a conservative forecast on what the options would be worth at the end of 4 years and realized that the money was far in excess of what I could have made as a consultant. So holding everything else constant, the offer with the options was clearly (far and away) the best choice. Now I'm not saying money was the only consideration. But I can tell you that anyone who has the least bit of financial background, does this type of analysis before accepting offers. And the options (at least with a winning company) definitely do make a difference. Those people who do have the luxury of choices between companies are the ones making these types of decisions, and the smarter ones look for ownership as the long term method of making their money. In fact, usually it's the only way to lure a high paid consultant away from doing consulting with the pure consulting firms. As far as your statements regarding accounting treatment, you are absolutely correct. But as far as our opinions on incentives for employees, we are at opposite ends of the spectrum.

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