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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Enigma who wrote (6133)	5/20/2002 8:29:22 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

Advantages/disadvantages of NQ option plans (includes same for corporate issuers): compensationresources.com Some more interesting points on the issue from the IRS perspective: washingtonpost.com Basically, not being an accountant, I can't provide you formulas or equations on how NQOs are handled. But on a broader pallete, it's seems apparent that being forced to do something that they had not been forced to do before is going to negatively impact their earnings. MSFT doesn't take their deduction until the options are exercised and they pocket the employees cash and "pass the buck" onto them with regard to selling the underlying stock. The company will then generally turn around and wait for the stock to drop below the exercise price and repurchase that stock, netting them a gain. But without a robust product line to boost investor confidence, this "pyramid" faces a potential collapse as employees lack any incentive to exercise, denying the company both cash and a tax deduction. The only question I have is when they must take the charge against earnings? When the option is exercised, or before, since it represents a future expense. Or do they wait until the option is exercised, and the expense realized, with regard to taking the charge.' But mechanics aside (although I'm truly interested in understanding them as well), MSFT will either have to issue twice as many options to maintain the same $$$ value of NQO compensation to their employees, with a marketable valuation. This will amount to "don't give me options with a strike of $50 when the stock can't get above $60 and risks falling below that price... I want them priced at $30 strike".. That means even more shares find their way into the market, causing even more dilution of earnings. It becomes a very slippery slope... Just my opinion. Hawk Hawk