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

To: rkral who wrote (761)	8/10/2005 2:28:21 PM
From: R2O	Read Replies (1) \| Respond to of 786

If stock is granted (at $0) to an employee in exchange for services rendered Agreed. But the subject didn't come up. If one gives an employee a car, or a pizza, it would be the same. Which PUBLIC companies GIVE STOCK to employees? How would this be considered the same as giving options (since this thread is about Employee Stock Options)? Re: Selling stock is a financing activity Agreed. But the state of the company is the same before and after the option grant-exercise cycle (before grant/sale, company has stock and no money. After exercise, company has money and no stock.) I would hope that would be reflected in the books. I am more interested in how things effect the operation of the company. Call it what you wish. At the end, company has money and no stock. Stock holder has stock and no money either way. Would selling a call option also be a financing activity? Would it only become a financing activity on being called? What would it be before that? When an option is exercised, is that a financing activity? Should be, yes? We sell company shares in return for money. Sometimes we sell it at a discount to current FMV (option exercise). I would suggest that we account for this in the same manner no matter who the buyer. Why shouldn't getting paid for stock via an employee stock option also be a financing activity? Agreed that it can be distinguished. Why would one wish to do so? When it comes to a pork chop, a left hoofed pig is much the same as a right hoofed. Re: If an option is granted (at an exercise price equal to the FMV on the grant date) to an employee in exchange for services rendered, there is also compensation expense Options are usually granted in anticipation of future service. That's, after all, why they have an exercise date. That's why employees can't sue, AFAIK, if they get RIF'ed before exercise date. I'll bet some clever trial lawyer has already litigated that point. Perhaps if they are granted in exchange for (past) services rendered there is a point to be made. If an option is granted to a non-employee it would still be an expense (but not employee compensation), yes? And if a stock warrant is issued, is that also a present expense? I come back to other forms of compensation that are not 'pay check' related, such as a corner office, better parking, private lunch room, etc. All these, indeed anything, can be converted to FMV, which would generally be greater than the actual expenditures to supply these perks. Should these be so converted and written down as expense? How about a well negotiated HMO benefit, far below the FMV. Should the company book the FMV as the compensation expense or just the actual cost? How about 2 week slot at a LasVegas condo at a 'cost based rate' to the employee (which the employee pays). FMV might vary greatly year by year. Do we take a highly volatile number i.e. LV RE values and make them part of the ice cream factory's income statement? If FMV turns out to be less than the expense based number, do we book a profit? I have read on this board that this type of conversion is REQUIRED by GAAP. Doesn't inform me how well the ice cream factory is doing. Neither does the expected price of the stock at some future date. If one is REQUIRED to convert to FMV for all 'compensation', then I understand the stock option case. It is then required for consistency. We may not be able to tell how the ice cream factory is doing, but we will be consistent. I like that. OF course, we have the obvious problem determining the FMV. Enter things like BS (That's Black-Schoales (sp?) to some.). But wait...let's pick and choose the data set. Perhaps I am dense, but it sure does appear that the only answers that count are the ones that tell us the management is stealing our stock. Fine. Stick it to the management (often they deserve it), but don't make muddy water. The present methods (and 123R) make it almost impossible (even for auditors) to determine if somebody is cooking the books. I am sure 123 demands a full detailed accounting (including data used to calculate the probabilities) of the option expense calculations. I am sure. Just like the fully diluted share calculations are clearly stated. IMHO, of course. BTW: will we go to 123RR when 123R it gets revised again?