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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (2097)	9/3/1998 4:16:00 PM
From: Tom Smith	Read Replies (1) \| Respond to of 4509

Chuzz, RE: Bottom line: the use of options for employee compensation is a bad system. We've both been on the PSFT threads for over a year now and this is the first statement you've made that I clearly disagree with. I think Congress should pass a law giving tax breaks to companies which compensate employees through options. The benefits (to the company, the employees, the shareholders and the economy in general) are numerous and the problems are limited to only one. See below. The company and the shareholders benefit because key employees have a vested interest in (a) staying with the company and (b) improving the company's performance and stock price. Options also reduce the cost of employee compensation by delaying it. i.e., The company gets the current value of the employee's service while not having to "pay" the compensation until the option is exercised, usually several years later. The employees benefit because options (a) are more profitable than cash, assuming the company's stock price increases over time (as most do, including PSFT) and (b) are taxed at a lower rate than cash compensation. The economy in general would benefit tremendously if ALL employees were paid a portion of their compensation in the form of stock options. The nation's savings rate would increase since the options could not be spent as quickly as cash, thus enforcing a de facto savings program on every employee. Employees would also be very unlikely to organize strikes against their employers if such an action would deflate their options' value. (Would the GM, UPS, or Northwest Airlines strikes have occurred if their employees were holding a significant number of stock options?) The only down-side to this arrangement is, as you mentioned, the tendency of some companies to reprice the options whenever the stock price drops significantly. I agree that this is a bad practice and I think it should be disallowed. I suspect you have different thoughts on this subject, so I'm looking forward to your response. Tom

To: Chuzzlewit who wrote (2097)	9/3/1998 5:24:00 PM
From: RetiredNow	Read Replies (1) \| Respond to of 4509

Chuzz, you have proclaimed yourself a cyic before, and now I see that you really are a cynic. You miss all the good things about options. Most of your top notch performers simply will not take a job offer without options. The better the performer the more they demand in compensation. So much so that companies literally can't afford the best of the best. The way they get them is to offer them stock options which can be worth far more than their salary ever could be. The catch is that they as well as their peers have to perform. I look at the employees of Dell, Cisco, Microsoft and a host of others for confirmation that options work at providing incentives to bright people. The fact the bright people know they can be millionaires if they work hard is plent incentive, believe me. I'm sure we all have our viewpoints, but as an option holder (not of PSFT) myself, I wouldn't trade that form of compensation for the alternative (especially because I know no company would pay me what my options are worth).

To: Chuzzlewit who wrote (2097)	9/3/1998 5:41:00 PM
From: Lutz Moeller	Read Replies (1) \| Respond to of 4509

chuzzlewit, options motivate the employees. Investors pay for ist, but investors are rewareded with motivated employees. So this medal has two sides. Lutz

To: Chuzzlewit who wrote (2097)	9/3/1998 7:36:00 PM
From: LLCoolG	Read Replies (1) \| Respond to of 4509

Paul, No, I understood your point completely. If PSFT is a great "Buy and Hold" as you proclaim, and that gyrations in price are insignificant in a mathematical sense, then who cares? If the stock comes back, the options will be worth more, hence the compensation is higher. It should make no difference, as long as it appreciates in the five years after the option is granted. Any nervousness on the employees part concerning this issue would scare me to death as a shareholder. That means they are not convinced the stock will come back, or are just spoiled. So why would a supposedly short term price decline bother anyone who is confident in the company's future?