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 : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (52217)	7/18/1998 10:08:00 PM
From: Meathead	Read Replies (2) \| Respond to of 176387

Chuz, can you walk us through the mechanics of a typical options grant and how the company might pay for it? Example, in 1990, employees are granted an aggregate of 10M shrs at a strike of $1. Suppose they all exercise simultaneously today at $100. What really transpires from an accounting perspective? > Are the shares originally put aside in 1990 at a cost of $1 or less to the company? > Or, When exercised, are the shares magically activated from the authorized shares coffers (like printing money), given to the employee who sells them into the open market increasing the "basic" number of shares outstanding? > Does Dell purchase shares on the open market for $100 (unlikely) and award them to the employee? Or something else... Re: I have a better idea. Pay bonuses in cash based on performance criteria that make sense. In an ideal world, that would be great. Unfortunately, establishing individual bonus metrics that tie together seamlessly with other individuals for the desired synergistic outcome is virtually impossible. Performance plans would have to be re-written every-single-month to stay relevant. I've seen the result of performance plan tunnel vision by employees and it can stifle innovation or risk taking. Not that performance plans aren't important, they are. And cash bonuses for meeting pre-defined goals are a valuable tool. However, bonuses have traditionally been reserved for the management ranks and do little to inspire or motivate the bulk of the workforce making < $50,000/year. A workforce who's interests are in line with the shareholders by virtue of ownership is analogous to Dell's direct model. Any other form of reward is simply less efficient. The question here is the option grant the costliest form of award? If the costs are extreme, it still may be worth it for the talent you retain... I'm a firm believer that you get what you pay for. Anyway, I hope you can shed some light on how these options can be accounted for and what they might actually cost a company like Dell. MEATHEAD

To: Chuzzlewit who wrote (52217)	7/18/1998 11:18:00 PM
From: Meathead	Read Replies (2) \| Respond to of 176387

Ok, I'm no a financial analyst but I spent a few minutes putting my pea brain to work to try and figure this out. Here is a simple scenario I've conjured up. Company XYZ embarks on a 10 Million share repurchase program Before: Cash: $2 Billion Shrs OS: 100 Million Over a 3 month period, they repurchase 10M at an avg of $50/shr. They also grant stock options to employees totaling 7 million shares. After: Cash: $1.5 Billion Shrs OS: 90 Million Diluted: 97 Million So what has really happened? All I can see is that the company bought something that cost 500 Million dollars. What did they buy? Well, here are some of my observations. Cash: Went down. Dell apparently has far more cash than they need to grow the business. They are left with deciding where to invest the rest. Acquisitions? No. Wall street views too much cash on the balance sheet as a negative. Book value: Went down. As a result of spending cash. Wall street does not value stocks based on book value. This goes in the don't care category Shares Outstanding: Reduced. Basic and diluted. A good thing. EPS: Increased. A natural byproduct of reducing shrs OS. Employee Ownership: Increased. My previous posts outline why I think this is an invaluable asset. So what's really going on here? Seems like Dell is re-investing a large portion of it's earnings into it's most valuable asset... it's people. The effect of this strategy seems to impact those balance sheet metrics that wall street doesn't care about for stock valuation purposes. Yet, it re-distributes the wealth within the family and develops a highly loyal workforce. Hmmm, is Dell smart? Maybe<g>. As for accounting, I consider this an ongoing infinite loop scenario. Various repurchase strategies, differing times and prices, options granted at different prices at various times throughout the year, very hard to get a handle on and quite complicated. I prefer to distill it down to the elemental investment in people. How has Michael Dell managed to keep a financial genius like Tom Merideth around for so long? Correct me if I'm wrong. Given the amount of time I spent on this, I probably am<ggg> MEATHEAD