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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (62816)	1/30/2003 12:20:40 PM
From: Stock Farmer	Read Replies (2) \| Respond to of 77400

ron, management is getting compensated for running a widget-making industry, for the benefit of shareholders. There is a tool which shareholders use to determine the degree to which the widget making is making them money. And which tool is used by experts and amateurs alike for calibrating the priceometer which is attached to their wallets. When the dial on this tool is at its preset factory setting, some of the cost of management compensation is not factored into the tool. Which throws off the precision by which the priceometer is calibrated. Which affects the functioning of the wallets of shareholders. In such a way that management's compensation is increased. All master craftsmen know this, and they spend hours with very fine instruments disassembling the tool and adjusting the internal wheels and cogs and setting the dial on the tool to where it belongs. But this is a laborious process. And tricky and fraught with error. One small slip of a tiny tweezer and the priceometer calibration is thrown terribly out of whack, in either direction. Master craftsmen would rather not do this. They do understand that the ability to make such adjustments is what makes them master craftsmen. Which gives them economic advantage over hordes of amateurs who would otherwise put them out of business. But someone let slip a page out of the secret training guide to master craftsmen. And amateurs were suddenly able to properly calibrate the priceometer. And suddenly discovered how far out of line it had let their wallets stray. And now they are angry at having been "deceived". And demanding that the factory ship tools that work when the dial is set at the factory setting. John.

To: rkral who wrote (62816)	1/30/2003 1:45:08 PM
From: RetiredNow	Read Replies (1) \| Respond to of 77400

Yes. Based on all the reading I've done on stock options and the various ways of accounting for them, I firmly believe that the appropriate way to account for stock options is to expense their value upon grant, adjust income upon exercise, and also account for dilution as it occurs. Whenever I think about things like this, I always try to see if it's possible to come up with a thought experiment that illustrates the problem's parameters. In this case, I the thought experiment I use is what if companies used outright grants of stock or cash instead of options? How would they account for the related compensation expense in those cases? Well, the answer is clear. A grant of stock would result in compensation expense on the income statement and a dilution of o/s shares. The cash compensation would reduce assets and result in a compensation expense. Therefore, stock options should both be counted as an expense and result in dilution. It's just common sense. Anything different is just obfuscation of the true cost of doing business.