To: SpecialK who wrote (38897 ) 8/12/2002 2:37:54 PM From: Casaubon Respond to As stated previously, expensing on exercise works fine.If an option expires worthless after 8 or 10 years, then the company would not have incentivized the worker with any monetary gain and would also have expensed it. you take on the risk of lower cash pay for the hope of reeping future rewards in excess of a simple cash salary, in the form of stock appreciation. It is not the case that you weren't incentivized, rather you (and the company) failed to generate high enough productivity to advantage the option grant. Perhaps if the period of the option grant was twenty years, instead of ten, the recipient would have reaped a huge windfall (speculation). Thus you can see, as I stated earlier, the nature of the value of the option is time based . If one were to take this to the limit, the company would be merely issuing stock grants (no time limit), instead of options, and this would clearly be taxable compensation which need be expensed. So, the option grant scheme is merely a mechanism by which companies tried to incentivize workers without tax/compensation ramifications. In reality, options grants are simply fractional shares in the company but expressed as a time limitation as opposed to a quantity limitation (edit: as is the case of outright stock grant. Not to imply the option grants don't have quantity limitations though!).You would get lower net income and less productivitity. That doesn't make sense. risk you take in lieu of cash upfront, in the hope of future payout. The time nature of the option has value which keeps the worker incentivized. If you reep no reward, you have ultimately failed in your gamble but, the company has still given you something. Thus, the option grant is remuneration and must be expensed.
