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To: Stock Farmer who wrote (29121)	2/23/2003 4:33:18 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 74559

John, By reflecting "profits" as the difference between what the company itself pays and what the company itself receives, and not disclosing shareholder subsidized wages, the company is materially misrepresenting management's effectiveness. While option share count dilution is less transparent than it ought to be, there is no inherent reason why the effective increase in outstanding share count can't be clearly reported. It may be that share repurchases shouldn't be allowed to mask the degree of dilution. I suspect that even in the case where the share count were perfectly clear, you would still have another complaint that the benefit that employees receive in the form of stock is not expressed in dollars and charged to the company. This is the result of a widespread economic fallacy that believes that any exchange is an exchange of equal values to the two participants. This is not true. All economic exchanges are the result of attempts to give up as little value to one's self as possible while receiving as much value as possible. All economic values are subjective. This is part of the reason that it is entirely valid for different levels of expense to be appropriate for accounting and for taxes, both for the employee and the company. If the employee receives x number of net dollars after liquidating his non-cash compensation, then x is the appropriate number for his individual taxes. There is no reason that x has to have anything to do with the company itself or its tax situation. The tax deduction that the company receives is not tied to the taxes that the employee pays, but is justified by the dilution injury to the shareholder owners, even if the company reports no expense for non-cash compensation. To see that the valuations of non-cash compensation are entirely independent for the company and the employee, consider the following: A company is located next to a ski resort. Every employee is given a free off-peak pass to the resort and its facilities. The owner of the resort supplies the passes to the company absolutely free in the hope of gaining additional business for his concessions. The passes may be extremely valuable to the employees, who probably self-select themselves as employees in part because of the passes and the company location. But no matter how much the employees value the passes, they still cannot be an expense to the company. The company has a unique advantage of having to bid less for employees than companies that are not so fortunately located. This is not an advantage that should be equalized away by accounting mischief. Regards, Don