To: rkral who wrote (178224 ) 5/30/2004 1:35:11 PM From: Lizzie Tudor Respond to it came from this site, fwcook- ever heard of them? They have done a bunch of work in this area of options. Just another opinion, one of many I guess but one I generally agree with. This isn't the link that broke out the high growth charges to JNPR and QLGC in the 90s but it is a summation of the basic point. They have a bunch of articles on their site.fwcook.com That said, it is reasonable to assess the implications of a change in stock option accounting on competitive practice. Our assessment is simple: the Black-Scholes values of options are so high in relation to market values that companies might severely cut back or eliminate their use if forced to expense the “fair value” of options on their income statements.3 Recent research by Professors Brian Hall and Kevin Murphy shows that the perceived value of stock options to executives at grant is typically around one-half to two-thirds of the Black-Scholes value, but often it is as little as one-third. 4 If true, companies would not likely continue to grant options that had a cost 50-200% greater than their perceived value. Stock options would be most adversely affected in those companies which have been among the heaviest users – high-growth technology companies. Companies that cut back or eliminate stock options would likely eliminate broad-based grants and employee stock purchase plans first. Then, for those at more senior levels, they would substitute some other form of equity grant for options, such as restricted or performance shares. This likely would only be for a fraction of the “fair value” of the forgone options, however, because companies would not believe that these Black-Scholes values were real values that needed to be replaced. * * * *
