Comments on: Tech workers rally against expensing options

Rally organized by tech industry groups aims to put a human face on debate over how to account for employee stock options.

[nealda]

Human Face?

Human face -- like the one on Arnold in The Terminator. This is just corporate astroturfing aimed at maintaining an accounting sham -- hiding operating expenses from investors until they get suckered. Expensing these options just allows investors to see the facts. It doesn't eliminate corporations' ability to issue options as these astroturf organizations would have you believe. Why do they want to hide their costs from their investors?

Why do they blame the FASB?

The fears of the tech industry workers could be rephrased as follows: 'Please do not change the current accounting rules because our employers will shaft us to preserve their bottom line'. Has anyone considered that perhaps the companies, and not FASB, are at fault here?

The FASB is doing a good thing in trying to force the US to use a more honest system (like that used by the rest of the world).

[alexeck]

Good for them

Why would we want to change something that has been so successful for so many years? Providing options has been a mainstay of the tech field.

I don't personally see how this makes companies "more honest". If anything, it is not a true reflection of earnings to place stock options (which are equity) into an income statement (which should reflect revenues and earnings). I can see the argument about the cost of employee compensation, but it's still equity, not an actual expense.

There is so much GAAP information on financial statements that might mislead someone, at least for people who don't understand how to read them. For example, people look at a company's income statement, and talk about how a company is losing money--when in fact, it may actually be writing off an acquisition. Or, you have capitalization increasing the profits, when the company might be draining cash (a game that WorldCom played unsuccessfully).

So then you have to look at EBITDA or a cash flow statement to get past all D&A. What are we going to have now? EBITDAO--Earnings before Interest, Taxes, Depreciation, Amortization and Options? Just silly.

Any intelligent investor looks for a company's fully diluted shares when understanding the share make-up (and fully diluted should include options and warrants). So that is the real issue: What is the fully diluted number? If this is not clear in current financial statements and share counts, it should be clear.

Otherwise, leave well enough alone.


Alex

[Nigel Johnstone]

The diluted shares speak with forked tongue

The fully diluted shares don't warn the shareholder about the options overhang that stops the price rising.

He finds that out when the price rises, the options strike, and his share of the company suddenly shrinks without warning pushing the price down. By then its too late he's been shafted by the company management. But hey he can learn later that he was shafted on the *next* accounts that show how his share of the company shrunk.

If you feel strongly that the cost of the options is really zero, then you are free to adjust the profit by this number, since it is listed in the accounts. If you're right then you'll make money while others don't.

However there's only a few holdouts, even in the tech sector against expensing.