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To: Oeconomicus who wrote (145472)	8/14/2002 12:42:24 PM
From: H James Morris	Respond to of 164684

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To: Oeconomicus who wrote (145472)	8/14/2002 12:43:38 PM
From: H James Morris	Respond to of 164684

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To: Oeconomicus who wrote (145472)	8/14/2002 12:44:23 PM
From: H James Morris	Respond to of 164684

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To: Oeconomicus who wrote (145472)	8/14/2002 12:45:05 PM
From: H James Morris	Respond to of 164684

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To: Oeconomicus who wrote (145472)	8/14/2002 12:48:09 PM
From: H James Morris	Respond to of 164684

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To: Oeconomicus who wrote (145472)	8/14/2002 1:12:18 PM
From: GST	Read Replies (2) \| Respond to of 164684

"The biggest difference between what you want and what I think is reasonable and logical is simply that you think unearned compensation is an expense regardless of whether it is ever earned or is forfeited and returned to the company, while I and most of the business & accounting world say it is not YET an expense for the simple reason that it has not YET been earned. When it IS earned, it becomes and expense." Nothing is ever forfeited and returned to the company unless the empoyee is fired before the options vest. To focus on the value at the point of exercising the options is to admit to knowing nothing about option premiums. The premium is never calculated at the point of exercise. It is meaningless. The timing of the expense is different from the value of the option. The option value is the premium and it can be calculated at any time up until the point of exercise when the premium is all but gone -- when given as compensation the premium must be calculated by a formula because the transaction is internalized within the firm rather than transacted in a market. The details of premium formula can be debated. The premium formula has yet to be determined. But there will be a premium formula. You do not accept this. As for timing -- after they have a chance to think about it, employees will insist the option compensation should appear on the books of the company at the point of issue. This is logical anyway because the premium at the moment of issue is the most realistic moment to calculate the premium. They will realize that if left to the point of vesting then the company has an incentive to fire them just before the options vest. The recognition of income for the employee can be at the time they are exercised -- nobody has a reason to argue otherwise. All of this is likely to lead to far less use of options as compensation.