Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: hueyone who wrote (197)	8/16/2002 1:11:22 PM
From: Ted The Technician	Respond to of 786

Huey, I agree with your view of how the lack of clarity impacts the stock prices, high executive pay, and how companies take advantage of this. For me as an investor, the high level of executive pay is not the true issue. I don't care if all the options are given to one executive or one entry-level employee. I care more about the aggregate level of options that is issued by the company; and, if there is a significant amount of options I would then care about the number of exercisable options, the strike prices, and expiration dates. I want to be able to quantify the impact of the company issuing options. What this means is that a single number (i.e., net earnings) will not be enough for me to do a full analysis. I would need many more line items (or footnotes, sigh), namely the items mentioned earlier, to be added to the financial statements. The problem I see is that the current financial statements are not really securities-price-sensitive (except for the periodic adjustment in "investments" within assets, but these "investments" are sensitive to other companies' stock prices). The financial statements need to change to accommodate the impact of the option granting and the potential option exercising. Large option grant expenses should lower the stock's maximum price (because of dilution when options are exercised) and increase the stock's minimum price (because of its higher margins, lower cost of labor, when the options expire out-of-the-money). Expensing options and reducing the earnings would be the more conservative way of implementing option grant expensing - it would help raise a flag to the average investor who looks only at the net earnings number, and let the more sophisticated investor adjust the earnings numbers upward at his own risk. IMHO, I could look at the current basic EPS when the stock is lower than the average strike price of the outstanding options, and look at the current diluted EPS when the stock price is higher than the average strike prices of the outstanding options. I would then discount that EPS by the current option grant expenses... The net effect is that I'll have a range of EPS based on the stock price (ugh).