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

To: Simba who wrote (64958)	7/21/1999 7:23:00 AM
From: Exacctnt	Respond to of 132070

Simba, You wrote, <<Why does the govt. give tax benefits to MSFT for the profits made by the employee due to the option exercise.>> As Mike stated in earlier post, because Congress made the law. I believe at one time, companies wanted to use the stock option plan as an incentive to employees to have an ownership stake in the companies that they work for. They convinced congress that this is good for American business and they should be able to get credit for adopting this strategy. Early use of options was primarily for the top officers of a company. Nowadays, there are companies issuing options to all their employees and use that issuance as a means of holding down wage increases, therefore understating wage expense on their income statements. Such wide prolificness has caused alarm bells to go off not only because is understating costs, but also creating huge future liabilities. <<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.>> It is exactly like deferred salary. In fact the lifespan for most options is 10 years from the date of the grant. To Microsoft's credit however, they recently stated that they would increase the base salaries of their employees and not rely so much on option gains in the future. <<Does govt. give tax benefits to companies for the fixed portion (normal base wages) of employee salaries they disburse for services rendered?>> Yes, in a sense they do because normal wages are tax deductible. <<Isn't MSFT highly leveraged by selling naked puts (although it has a huge cash hoard ) if the stock market tanks like in 1929.>> The naked put warrant strategy is not a leveraging position in MSFT's case because they do have a huge amount of cash and they also need to repurchase a large number of shares to replenish their Treasury stock account. If those put warrants ever are in-the-money and exercised, Microsoft even has the option to issue new shares to cover it. Regards,