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To: Clarksterh who wrote (122020)	7/24/2002 2:23:13 PM
From: A.L. Reagan	Read Replies (1) \| Respond to of 152472

So there would be no taking money back. Assuming that the credit offsetting the Black-Scholes debit to compensation expense goes immediately to paid-in capital rather than some liability account. Companies, especially those with poor cash flows, will be incentivized to maximize the option value in order to minimize their taxes and thus maximize their cash flow. Don't get it. There's already a tax deduction and nobody's talking about changing the tax code on deductibility. So there is nothing about expensing options per books that should change tax planning. As far as deliberately increasing volatility, that seems counter-intuitive - a more volatile stock will have a higher expense under Black-Scholes ceteris paribus, and only real idiots would go out of their way to increase reported compensation expense.

To: Clarksterh who wrote (122020)	7/27/2002 6:14:37 PM
From: rkral	Read Replies (1) \| Respond to of 152472

OT ... Companies [..] will be incentivized to maximize the option value in order to minimize their taxes [...] For instance if the options are valued using Black Scholes at the time of issuance then there will be incentive for the company to increase volatility, and this is something that is easy for a company to do and very hard to prove. I don't understand your point here. For companies that choose the 'intrinsic value' method of FAS 123 (that would be about 99% of companies in S&P500), there is no relationship between the tax credit at exercise and the Black-Scholes value at grant. Are you talking about the 'fair value' method of FAS 123? Please clarify. Ron P.S. Subject 53027, an employee stock options thread.