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To: Paul Merriwether who wrote (126352)	5/18/1999 7:09:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Paul, cash works just as well -- better in fact because it can be tied to actual employee performance tailored for each employee, and it provides a 30% tax shield to the corporation which is higher than the tax rate that the long-term investor gets. For example, if the statutory rate is 30%, and that exceeds a LT capital gains rate of 20%, you can see that it is more tax efficient to pay cash. TTFN, CTC

To: Paul Merriwether who wrote (126352)	5/18/1999 7:19:00 PM
From: Michael Bakunin	Respond to of 176387

Options grants and such are not free; that the bill comes not in cash but in dilution should be felt keenly by participants on this board. -mb

To: Paul Merriwether who wrote (126352)	5/19/1999 10:47:00 AM
From: rudedog	Read Replies (1) \| Respond to of 176387

Paul - This is a topic which has been explored for a while on this and other threads. Among the problems with using ESOs to provide "upside incentive" are the unknown cost to the company, the inability of the company to defer some of that cost to Uncle Sam, the fact that once granted, the ESOs are no longer tied to individual performance (witness Eckhard Pfeiffer making hundreds of millions on options he received 8 or 9 years ago as opposed to his recent performance). In many ways ESOs work exactly against the company's interest. They provide insulation from current events to employees who did a good job many years ago - those employees no longer have the same incentive to keep the company's long term interest in mind. The shareholders have no idea what the real liability of ESOs is - two otherwise identical companies can have very different forward-looking costs if the outstanding ESO picture is different. There are plenty of other mechanisms which are on the balance sheet and still link to company performance, for example short term (2 year or 3 year) payout cash bonuses paid quarterly but linked to stock price. Such cash bonuses are deductible as compensation expense to the company, have a near term purpose which is more closely linked to employee performance, and can be adjusted in various ways along the way, for example by linking to customer satisfaction or other corporate goals in addition to stock price. I think the main reason ESOs are so popular is that they don't show up on the P&L. This allows companies to pay large compensation without having it become visible. But we, the shareholders, end up paying when the equity base gets diluted.