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To: Stock Farmer who wrote (29395)	3/2/2003 8:15:40 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 74559

John, When stock compensation becomes significant, we should factor it in based on opportunity cost. And the opportunity cost for a stock grant, for example, is exactly what the company could get if it sold it on the open market. Right? Absolutely not! It would be the opportunity cost that you claim if the stock granted were another company's shares, but not the company's own shares. This is because if a company wants to sell shares on the market, it simply is not prevented from doing so by previous stock grants to employees. A company can issue shares in virtually unlimited quantity without any significant impact beyond that of ownership dilution on the existing shareholders, which everyone SHOULD agree is appropriate. The only way a company is effectively limited in the issue of its own shares is a lack of shareholder permission, as long as its virtual copy machine is working or can be repaired. This covers the first requirement of an opportunity cost, i.e. an actual prohibition of a potential action. This requirement is NOT met. But there is a second requirement as well, and that is that the prohibited action is of actual benefit. While you could make the case that the proceeds of a stock sale can be used for necessary corporate purchases and investment, this applies only to a limited degree. Once the needed funds are available, further stock sales into the market have no benefit as the existing shareholders are compensated by their proportionate ownership share of the sale proceeds exactly to the degree that their shareholdings are diluted. If the shareholders feel that they benefit from the sale proceeds the company has received for its sale of stock into the market because they expect the stock price to fall, they should be selling their own shares. Regards, Don