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

To: Mama Bear who wrote (83018)	8/16/2000 4:16:31 AM
From: Bilow	Read Replies (1) \| Respond to of 132070

Hi Mama Bear; Re: "OK, so if the theoretical cost of options are listed as an expense, shouldn't the reduction in compensation be accounted for as income?" LOL! Oh, it is getting pretty late at night! Of course there is no savings to the company from using options, if the value of the option is equal to the decrease in compensation. Either way, the pay is an expense. As an example, if a hot shot VHDL engineer is making $150 per hour contracting and you want him to join your startup at $50 per hour, you have to give him stock options that he will value at $100 per hour. The question is whether the company should list him at a cost of $50 per hour or at $150 per hour. A better example would be a company where you are paid totally in stock options, but working there costs you money. Instead of the company paying you cash, you have to pay them cash. So you get $200 in stock options per hour, but you have to pay the company $50 per hour. The reduction in compensation due to stock options is $200 per hour, so the net pay is $150 per hour, as in the above example. But on the corporation's books, if they listed the reduction in compensation as income, the company would book income of $50 per hour from the employee, and an additional $200 per hour from his stock options. Thus the company gets labor that is not only free, but actually accrues to income. A more realistic example would be the startup that pays everybody only in options. Such a system means that the company has zero compensation costs, under the current SEC regulations for computing earnings. -- Carl