Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (5)	6/10/2002 6:21:55 PM
From: hueyone	Respond to of 786

But even though I think you have gone crackers<gg>, I will try to add some clarity to this one point you presented: I firmly believe, should Levin/McCain S.1940 pass, that corporations will loose the tax benefit. Why? I think viewing the intrinsic value (market price minus exercise price) of the option as compensation to the employee, from the viewpoint of the employee, is correct. But from the corporate viewpoint, it is not employee compensation expense. It is a phantom expense. There is no cash flow, as evidenced by its conspicuous absence from cash flow statements. Ron, In a nutshell corporations are taking the expense and related tax benefit with the IRS now, and the Levin/McCain bill does not legislate the tax law to say they cannot take this expense and tax benefit; it only requires that corporations tell shareholders and Uncle Sam the same thing regarding this expense. Your comment says you think corporations will "lose the tax benefit" under the new law. Perhaps you meant to say that corporations will choose to give up the tax benefit rather than reveal the stock option compensation expense to shareholders on the income statements? If that is what you meant to say, then we can discuss the issue from that perspective, but simply to say corporations will lose the tax benefit under the new law is a misleading way to phrase things. You fail to even mention that there is a choice of whether to take the expense or not. Since the tax benefit provides cash flow to the corporation, it is my opinion that corporations will choose not to give it up. If any of the corporations I am invested in fail to take the expense with the IRS, thus reducing cash flow, for the purpose of hiding stock option compensation expense from shareholders, you can be sure they will here from me and many other shareholders. Here is the link to Senator Levin's testimony before the Senate Finance committee in April on the subject: levin.senate.gov Here is snip from Senator Levin regarding the subject that I just addressed: Companies under our bill would have a choice. We don't say no stock options; we do say they have value and treat them that way. Companies can grant options and take them as a tax deduction if they show them as an expense on their books; but, if they choose not to treat stock options as an expense, then they couldn't turn around and tell Uncle Sam the opposite. They would have to tell investors and Uncle Sam the same thing. Best, Huey

To: rkral who wrote (5)	6/10/2002 7:19:00 PM
From: Uncle Frank	Read Replies (2) \| Respond to of 786

Ron, I just stopped by to wish you success with your new discussion forum. My only complaint about employee stock options is that I don't have any. uf

To: rkral who wrote (5)	6/11/2002 12:12:16 AM
From: Clarksterh	Read Replies (1) \| Respond to of 786

I think viewing the intrinsic value (market price minus exercise price) of the option as compensation to the employee, from the viewpoint of the employee, is correct. But from the corporate viewpoint, it is not employee compensation expense. It is a phantom expense. There is no cash flow, as evidenced by its conspicuous absence from cash flow statements. Yea verily!!! Note that everything else included in the earnings is something that, sooner or later, will show up in the cash flow and vice versa. But this is not true of stock options, which aside from the corporate welfare gift by the IRS, never shows up in the cash flow and never will. It is setting an entirely new precedent to put something in the earnings statement which never shows up in the cash flow. I think that the only reason for people wanting the stock options put into the earnings statement is because there are a lot of people who are angry about the amount of money being paid to CEOs etc. IMO this definitely needs fixing, but there are better ways than perverting the earnings statement. Clark