Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Wind River going up, up, up! -- Ignore unavailable to you. Want to Upgrade?

To: Michael Greene who wrote (3410)	7/16/1998 10:01:00 AM
From: peter grossman	Respond to of 10309

Thank you Michael. I initially minimized the impact of the option plan having misconstrued the impact as relating to all past options vs. simply those granted in a single year. Now, I too am concerned. I look forward to Dick's answer. He's been responsive and helpful to me in the past.

To: Michael Greene who wrote (3410)	7/16/1998 11:39:00 AM
From: Allen Benn	Read Replies (2) \| Respond to of 10309

Michael, I doubt that Dick Kraber can give you a satisfactory answer to your questions in a public forum. Actually, the complete answer to your questions is extremely involved, but I am going to make a stab at telling you what I suspect Dick and Ron would like to you to know. When this thread brought up the subject of employee stock options in the past, I routinely defended them on the basis that they are a necessary cost of business in Silicon Valley. Posts during my absence were more fervent than usual, no doubt fanned by the FAS 123 EPS figures that depict a significant spread between reported and pro forma EPS over the years. Some posts questioned management's underlying motives for recent stock buyback programs, suggesting that the real motive is to use balance sheet tricks to mislead investors about the true costs of overly generous employee stock options. While I think it fine to tackle these kinds of issues on the thread, investors should bear in mind that it is wrong to impugn management's character without a deep understanding of all the issues surrounding employee stock option plans, and fully understanding these issues is tough. Very little about stock options is as it appears to the casual observer, and I am going to try to explain why. Surely most investors must sense that something is not quite right with popular economic arguments that pin excessively high hidden costs on employee stock options and purchase programs, and this includes FAS 123. Why should investors feel niggardly toward the very people breaking their necks to make the company successful, and worth more to the financial market as reflected in the stock price? Every investor should be thrilled if WIND makes scads of company millionaires just like Microsoft. While some might argue that investors could profit even more without sharing fairly with the men and women who make it happen, no one can deny that, if employees get rich on options, then so will investors. And don't think for one minute that WIND is anything but a people business. Its intellectual property comes from the sweat and smarts of employees, and every effort to obtain and service customers is accomplished by the very same employees. Stock options are like paying salespeople commissions in addition to base salary. Any sensible manager wants to pay salespeople as much as possible in commissions, not less. If instinctively you support the notion of stock options, but find yourself disturbed by FAS 123 effects displayed in the annual report, then that proves you are human. However, FAS 123 requirements are "theoretical" in the reported words of Ron Abelmann, and certainly not reason enough to abandon a proven, and arguably necessary, approach to enriching all stakeholders in a company. Sometimes people use the word "theoretical" as a euphemism for "impractical" or "unrealistic". My word choice would be somewhat different than Ron's. To me, impractical theory simply is na‹ve, or worse, and doesn't deserve to be called theory. But then again, I'm not in the delicate position of having to speak with restraint. Let's look deeper at the logic of FAS 123 and the economic underpinnings of stock options to see why FAS 123 might be a na‹ve concept best treated gingerly by investors, and certainly not to be considered a replacement for traditional EPS calculations. While we are at it, let's establish an acceptable theory for appreciating both stock options and buybacks. Finally, let's examine WIND's historical pattern in granting stock options, and decide if stockholders are being asked to bear excessive hidden costs. The companion posts to this one takes on this tedious but now necessary exercise. Allen