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

To: Exacctnt who wrote (98)	6/21/2002 1:09:39 AM
From: hueyone	Read Replies (2) \| Respond to of 786

Exacctnt and Biomaven: Thanks for the explanations. Do you have any links to FAS 128? Are all companies using this Treasury Stock Method when they report diluted earnings? If so, the main issue must be when and where to best account for stock option compensation. The current system appears broken to me. Option grants have spiraled out of control---with their value expanding twelve fold since 1993 and CEO pay expanding from 100 times the average worker to 500 times the average worker during that same time. Average vesting periods recently dropped from four years to three years. When the stock price goes down, the board just issues new stock options at a lower price. There is no alignment of outside shareholder interest with insider employee interest at all, and very little incentive for managers to manage well for the long term interests of their companies. They seem to make the big dough whether the companies are performing well for the long term or not. If stock option compensation was charged directly against net income, (instead of being reflected in diluted earnings per share--- if it is), it seems to me that this might have a chance of reversing the unfortunate trend of stock option compensation spiralling wildly upward and out of control and possibly reversing the trend of the ever widening divergence between insider shareholder interests and outside shareholder interests. What do you think? Best, Huey

To: Exacctnt who wrote (98)	6/21/2002 8:49:07 AM
From: rkral	Respond to of 786

Exacctnt, you're our latest new poster. Welcome aboard! And congratulations on your move from accountant to private investor .. especially at such a young age. Ron

To: Exacctnt who wrote (98)	6/21/2002 9:31:00 AM
From: Biomaven	Read Replies (1) \| Respond to of 786

Exacctnt, A small correction - FAS 128 only looks at the average price for the quarter, not the ending price. (The old "fully diluted" that is no longer used looked at the ending price). Also the tax benefit calculation only applies to NQ options - disqualifying dispositions of ISO's are ignored. From an investment perspective, the biggest distortion in FAS 128 is that diluted shares are only calculated for companies that are profitable on an operating basis. Thus you have to estimate what the number of diluted shares is for most non-profitable biotechs. (The reason for not reporting diluted shares is that this would appear to reduce the loss per share because there are more shares outstanding.) Peter