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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: Charles Tutt who wrote (50675)	7/24/2002 6:54:35 PM
From: DiViT	Read Replies (1) \| Respond to of 64865

"the employee has income of their fair value" When do the income taxes get paid? Hypothetical: Let's say you are a smart person who get's hired by Sun. On your one year anniversary, they reward you for the fantasic increase in revenue your department had, with a $10k cash bonus and because they want try to get you to stick around, they give you $100k (FMV that day) of stock options that vest over 5 years. Assuming your in the 30% bracket how much income taxes would you expect to have deducted from your paycheck on that payday?

To: Charles Tutt who wrote (50675)	7/24/2002 8:59:58 PM
From: CYBERKEN	Read Replies (1) \| Respond to of 64865

The matching principle is not satisfied. The company is paying for future results with options, not current ones. If the results have been realized, the company should simply be paying a bonus. Also the cash available for the employee to pay the tax would have to be lent to him at the time of the grant, a counterproductive practice. Should options be made artificially unattractive, there would be no real reform. They would be abandoned in favor of the employment contract being re-written to promise future grants of actual stock, based on certain milestones, and the share-issue count adjusted for market price throughout. (That's a little like issuing your executive staff floorless convertibles). My point is that we know what's wrong now when options are abused, but the issue of what to change is complex. You almost need a FASB-like organization to study it for several months...Gee...

To: Charles Tutt who wrote (50675)	7/25/2002 1:12:23 PM
From: Ali Chen	Read Replies (1) \| Respond to of 64865

"Why not just treat them as what they are? On the day they're granted, the employee has income of their fair value and the employer has a compensation expense of that same amount." It just does not make any sense. Why all these over-complications? When options are granted, an employee definitely has no income, whatsoever, and may not have any ever, and therefore I can't see any reason why should he pay any taxes at the moment of grant. Likewise, the employer has not incur any expense, none. The question arises only when the options are vested, and the employee has elected to exercise them because of their market value being higher than the granted price. The problem is where the company is going to get those promised shares, right? They can print few more certificates and fulfill their obligations, if shareholders allow for this provision, with the stock dilution effect. How much it can cost the company I have no idea, nothing I guess, so there is no formal expense, all expenses are on shareholder's pockets, evenly distributed. Alternatively, they can buy back the necessary number of their shares on open market, provided again that the buyback was approved by shareholders. In this case some real money are involved, e.g. $1B/q at Intel. However, for some strange accounting rule, these are not expensed when presenting official company's earnings. What is the problem with accounting for these obvious expenses? I do not understand, must miss something.. It can be fixed by a single paragraph change... - Ali

To: Charles Tutt who wrote (50675)	7/25/2002 2:25:42 PM
From: E_K_S	Read Replies (1) \| Respond to of 64865

Hi Charles - It's quite simple. Have the company work with our favorite investment bankers and provide options bought in the open market from the CBOE. An employee package can be structured with staggard periods and strike prices. Two year leaps are now available but if there is enough interest in three, four or five year leaps, I am sure the investment bankers will create a market. The company would expense the actual cost of the out of the money option(s) at the time they are issued. When exercised, the company would transfer the stock to the investment banker. The company would have to maintain employee shares set aside from time to time as a balance sheet item. When transferred, the appropriate accounting entry adjusts the accrued balance of held employee shares to reflect the actual assets (and value) held in the account. As far as taxes, the company can provide with the package some cash (like a bonus) that would cover the up front liability. The employee would be issued options that can be traded any time on the open market for cash. The reason for all option incentive programs is to make the employee feel they are participating in the success of the company. Management must provide these types of incentives down to the lowest level employee not just VP's. An alternative to all of this is to implement a standard profit sharing program which if approved by the shareholders provides a certain percentage of quarterly profits (usually 10%-15%) to be distributed among all employees. The formula for distribution is usually based on their current wage and on average works out to be equivalent to one to two weeks pay for a middle manager. EKS