Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Exacctnt who wrote (64891)	7/20/1999 8:45:00 AM
From: Freedom Fighter	Respond to of 132070

Exaccnt, >>Stock options are widely used by corporate America. The benefits to the company are primarily used to keep a lid on compensation costs and to entice future employees. The danger, however, is that it creates a huge future liability.<< There is one other danger. It lures investors into believing their companies are making a lot more than they actually are. Wayne

To: Exacctnt who wrote (64891)	7/20/1999 1:25:00 PM
From: umbro	Read Replies (2) \| Respond to of 132070

Thanks Exaccnt, and Mike. Couple more questions, re: MSFT ESOP's: The gain to the employee is taxable to the employee, but MSFT receives a credit(reduction) to its tax liability. This credit lowers MSFT's cash usage, hence, it contributes to the cost of buying Treasury stock through its repurchase program. What is the rationale behind the tax credit? I don't get it, if there is no offsetting expense, at some later time. And what if the stock heads back down, after the exercise? Do they have to "give back" the tax credit? Another question: Does the income from stock exercise, paid in by the employee appear as part of reported earnings? Or is this simply a balance sheet item that adds to cash? Stock options are widely used by corporate America. The benefits to the company are primarily used to keep a lid on compensation costs and to entice future employees. The danger, however, is that it creates a huge future liability. And the risks aren't often fully disclosed. Cisco, for example appears not to report the number of outstanding employee options, the status of a buyback program (if it exists), and it is reasonable to assume that CSCO has an aggressive employee option program.

To: Exacctnt who wrote (64891)	7/21/1999 2:12:00 AM
From: Simba	Read Replies (1) \| Respond to of 132070

Exacctnt: <<<Umbro, Regarding MSFT employee stock options. <<What is the "tax benefit" mentioned above?>> The tax benefit is provided to MSFT whenever an employee exercises an option. The gain to the employee is taxable to the employee, but MSFT receives a credit(reduction) to its tax liability. This credit lowers MSFT's cash usage, hence, it contributes to the cost of buying Treasury stock through its repurchase program. >>> Why does the govt. give tax benefits to MSFT for the profits made by the employee due to the option exercise. Isn't it kind of like "deferred" salary (assuming the stock goes up; otherwise employee will not exercise) that MSFT has agreed to pay for getting the services from the employee. Does govt. give tax benefits to companies for the fixed portion (normal base wages) of employee salaries they disburse for services rendered ? Isn't MSFT highly leveraged by selling naked puts (although it has a huge cash hoard ) if the stock market tanks like in 1929. Imagine the forced buying back of the stock at a high price for stock options which will be worhtless anyway under such a situation ! Sure one might argue that since most options will not exercised, but the seller of the put warrants still has to pay cash to the buyer, am I not correct ? (BTW I have never traded options, so enlighten me)