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

To: Don Lloyd who wrote (83149)	8/19/2000 9:35:42 PM
From: Bilow	Respond to of 132070

Hi Don Lloyd; Agreed that the stuff that applies to stock grants, free or discounted also applies to option pricing. With current SEC accounting policies, companies cannot avoid compensation charges by giving employees stock outright. What is driving the option based plans is the loophole in the SEC accounting policy. Otherwise companies would pay employees in straight stock. All the options do is confuse the situation enough that you can slip the employment compensation past the accounting / auditing standards of the 1960s. If ever they do require options to be charged against earnings, (something I doubt will happen before the next secular bear market) no doubt companies will find another technique to hide expenses and exaggerate earnings. And when that technique becomes widespread, the accounting standards will have to change again. By the way, I've seen several small startups, pre-IPO, pay employees (at least partly) with straight stock. At that point, they aren't trying to impress anybody with their earnings reports, or avoid taxes, so they do the natural thing and just give stock directly. Usually it is in terms of shares per hour. Re Random musings... I agree that if a company is static, then there really isn't much reason to buy and sell its stock. But I guess there is some reason, as people seem to buy and sell preferred stocks and bonds. In any case, earnings need to indicate true earnings for the business of the company, not the cash flow of the company, or its relationship with its employees, (or how wealthy its employees are becoming) or what its stock price is, or anything other than an indication of how the business of the company is doing. There are people who buy companies based on multiples of their cash flow, instead of earnings. Cash flows usually have sale of stock backed out of the numbers, but they do not have the compensation corrections for employee stock options, I believe. -- Carl