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To: GVTucker who wrote (165231)	5/17/2002 3:01:11 PM
From: Ali Chen	Respond to of 186894

GVTucker, "preventing the stock option loophole" Hey, it appears that you can pull out a very reasonable post. Thanks. - Ali

To: GVTucker who wrote (165231)	5/17/2002 3:46:05 PM
From: Saturn V	Read Replies (5) \| Respond to of 186894

Ref < A cash bonus create motivation, too, you know. Why do more firms use options than cash bonuses? > The discussion about options can only be understood by people who had options in the high tech business. Options are a much better motivational tool even though high tech companies use both. Suppose you give an employee a cash bonus of 20 % of salary if certain financial goals are met for the fiscal year. At the end of the fiscal year the employee pockets the bonus, and is free to look for an alternate job at a competitor thinking that the next years bonus is not a sure thing. So the turnover rate with cash bonus is higher. However suppose you gave the employee an option vested over 4 years. And after 1 year, suppose that the stock has appreciated , and the vesting for each year amounts gives him an extra 20% of the salary. Typically the employee will view this as money in his pocket for the subsequent years, and will be less apt to look elsewhere. In reality employees have made very large amounts of money ( at times equivalent to their regular salary) on options every year. Even the sheer possibility of a large stock appreciation is very motivating and keeps employees locked in. Such options serve as "golden handcuffs", while the employee turn over with cash bonus tends to be higher. It is not clear how what impact the new tax treatment will have on the granting of options. Stock Options have been the great fuel of the high tech revolution of the last 35 years. The detractors of the options have never benefited from options. The Stock Option detractors have the thinking which is more relevant to smoke stack industries.

To: GVTucker who wrote (165231)	5/24/2002 7:14:25 AM
From: Amy J	Read Replies (1) \| Respond to of 186894

GV, RE: "They have nothing to do with each other." I absolutely agree they shouldn't have anything to do with each other, but AG thinks they do. Check the web for articles on his recent speeches. RE: "A cash bonus create motivation" Cash bonus does not incentivize employees to care about the company's overall financial performance, nor their neighboring depts. An options incentive program gives executives in other depts the motivation to stick their necks out to initiate an alert for a fix to their neighboring dept's problem. A cash-only incentive program would make it someone else's problem, not theirs. An option program makes it everyone's problem. I would never invest in a company that is a heavy user of cash bonuses over options. It's almost a given that those companies start having huge problems. There are several notorious examples that come to mind, and you don't have to look too far to find these companies. Cash isn't a long-term motivator tied to stock performance. RE: "Why do more firms use options than cash bonuses? Two reasons" Wrong. The #1 reason is motivation. Motivation that's tied to company's performance. Employee goals that are aligned with investors. Once you cut a cash check, the person doesn't have to be motivated. RE: "For a larger firm like Cisco or Intel, the motivation factor isn't too significant anyway." Okay, someone tell everyone at Microsoft, Intel and Cisco that they shouldn't be motivated because you said so. RE: "One employee doesn't make enough difference to impact the stock price." A handful of employees can bring in a ship date. That can have a huge impact to earnings of any company. Having the belief system that any given employee is not valuable, could very well become a self-fulfilling prophecy...for an entire company. You must have read in business school about the successful Apollo space project - how everyone had an important role? And they did, that's why it succeeded. RE: "A cash bonus serves the motivation factor much better" I would never invest in such a company that is heavy on cash over options. I want a return on investment. I'm not interested in investing in some Jaguar-driving executive's latest fetish cash-demands. Contrast this to options, I would expect an employee to want options and to ask for as much as they could get, because that would imply three things: a) they value the stock and so their goals would be aligned with mine, b) their motivation is going to last more than the change of the wind, and c) they want to build value. Performance needs to be tied to stock, which is what everyone cares about. RE: "It has absolutely nothing to do with economists not understanding motivation." Are you familiar with how government policy is created? There are hundreds (or is it thousands) of Economists in the Statistics Bureau. But there are only a handful of policy-making economists per gov't dept that feed proposals to Congress. The policy-creating economists draw on the economists from BLS that provide them with huge amounts of compiled data, to create their business case for a particular policy proposal. Unfortunately, the process is greatly flawed - the huge mistake with today's gov't economic proposals is they lack input of intangibles variables, such as motivation, and yet that's one of the key ingredients to innovation, growth and this country's GDP. It appears gov't economists don't know how to associate a value to an incredibly important intangible variable in their economic models. How could Gov't Economists understand motivation when they don't even measure it? Thus, US policy based purely upon economic modeling is inherently flawed. That's why Congress needs to get input from executives who are in the best position to convey the value of the intangible variables. It's the logic around the arguments against AG's proposals that need to win. I'm not interested in seeing this country deteriorate due to faulty policy-creation based upon faulty economic modeling. Regards, Amy J