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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (693)	8/2/2004 5:31:03 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 786

Ron, "If options aren't compensation, what are they"? A one word answer would be appreciated. The answer is 'conglomersation.' The definition of 'conglomersation' is : "A contingent offer of partial company ownership effectively made by the existing owners in lieu of cash compensation." Regards, Don

To: rkral who wrote (693)	8/2/2004 6:36:53 PM
From: R2O	Read Replies (2) \| Respond to of 786

I think I know what options are. But what is compensation? Of course, you may use more than one word. But please be sure you include all types of compensation or else I may come up with the wrong word. The problem is balance sheet dilution never makes it to the income statement. But that assumes the answer already. The argument is whether it SHOULD make it to the income statement. Perhaps you could refresh my memory: do proceeds from public offering make it to the income statement? I'm just a wee babe wrt accounting, but seems to me every time somebody moves things 'from' balance sheet 'to' income there seems to be obfuscation. Buying calls and (presumably) giving them to the employees would involve a cash outlay. Right. Expenses are not all created equal. Some expenses are CASH, some expenses are promises, some expenses are deductible, etc. And so it is with compensation. Not all is expense, and if it were, not all would be .... deductible. But then the proposed 'expense' of options isn't tax deductible, is it? Share buy back also involves cash. So if we need to use cash to buy those options shares, isn't it just an argument about 'quantity' not 'quality'? So use whichever way is 'cheaper', right? Were they European 'calls' (with a fixed certain exercise date), then you could give them to the employees. ... But why sell calls to the public when you're able to sell them to a captive audience .. your employees? I didn't know that an option grantee paid for the option. I thought they just paid for the stock when they exercised the option. Even if they did pay for the option, wouldn't it be better to get strangers to fund the company? Another reason to buy calls from the public is that, should the grantee actually exercise their option, the company can exercise their call and not dilute company stock at all since the stock being acquired from the public. No, it doesn't cost the company any cash (except for the previously paid premium) since the grantee pays for the stock. How would you choose to account for that choice? If you have an employee stock option 'covered' by a call, is it still dilutive? Do you account for the call as negative dilution even though it isn't yet (and may never be) exercised? And how in the world does it find it's way to the income statement? Do you think stockholders' equity ends up the same when stock repurchases are made at the exercise date instead of at grant? What 'repurchases' are being referenced? Are you proposing a cash outlay? Lacking futuresight, it is impossible to answer that in any particular case, and has no general answer. Or did I miss it? (Thought experiment) Fixing values at the time of the grant can be done by the company selling calls for the exercise price/date. This value SHOULD be the same as the amount that you want to charge as an expense, right? The 'value' is that determined by the market, approximated by BS (that's Black-Schoals, not the other, but either will do). Isn't that the equivalent operation? BTW: How are convertible debentures handled? Are they expensed? I remain open minded on the issue but have a prejudice against 'arbitrary' movements between balance and income, no matter how explicitly documented, that purport to inform investors. I would even vote against depreciation (as presently done) were it not for taxs. Eagerly awaiting definition of compensation. Sorry for the blather.