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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Jim Mullens who wrote (126001)	12/12/2002 2:50:21 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 152472

Without these folks the company is worthless, and these folks can’t be persuaded to work and stay with the company without the opportunity to own a 3 percent share of the company sure they can! just pay them $1 million a year instead of $125K. then you don't have to give them any options. or give them whatever value the options represent. options are very replaceable by cash. especially nowadays. I would think for the sake of consistency, if one assigns a value to one side of the transaction a value should also be assigned to the other side of the transaction. Accounts like consistency you know. the point is, when a co hires somebody, that employee is supposed to make a good-faith effort to perform the job requirements according to the job description, REGARDLESS of the salary. failure to do so may be grounds for termination. the issue is whether or not an employment contract can be established. if a contract requires $1 million cash or $125K cash and $875K stock/options, then those are equivalent compensations. the employee is compensated in full in each case, and is expected to make a good-faith effort according to contract in each case. so the "other side" of the options expense that you want so badly to put in the assets column is just an employee doing his job. which he would do without any options if you gave him enough cash.

To: Jim Mullens who wrote (126001)	12/12/2002 3:43:35 PM
From: rkral	Respond to of 152472

OT/Jim Mullens, .. if it would also be appropriate for a company to “estimate the value” to the company in the from of increased profits resulting from increased employee productivity/ loyalty (retention) by providing such options to the employees. This is exactly what occurs. Take your example of the company with the revolutionary technology. The prospective technologists may be talking percentage ownership .. but they are thinking $$$, believe me. They are thinking, for example, that they collectively want $300 million for busting their butts for the next seven years. They estimate the company will have a market value of $10 billion at that point .. so they ask for 3% ownership via options .. over the intervening 7 years. Present ownership of the company is also thinking $$$ IMHO. Coincidentally, they also think the market value will be $10 billion .. IF they can hire these highly skilled technologists. They estimate the market value will be approx $9.7 billion .. IF they must hire the average run-of-the-mill technologist. So the company and the technologists strike their bargain. No additional accounting entries required IMO. .. assign some “estimated economic value” to the options granted to the employees even though there is no “out of pocket” cost to the company .. The zero cash flow aspect of the grant bothered me at one time too. I now visualize a barter transaction with 3 simultaneous value flows: 1) the employee agrees to work for the company for the extended term (the vesting period), for which 2) the employee receives cash compensation, which 3) exactly pays for the option premium. Two cash flows (that don't get reported afaik) that result in zero net cash flow. The IRS doesn't get exited about taxing this barter. They know that, on the average, they will get their "pound of flesh" when the options are exercised. AFAIK, the tax law may be written this way to encourage development of new companies .. which don't have the wherewithall to pay 100% cash compensation. JMHO, Ron