Comments on: House to FASB: Drop dead!

CNET News.com's Charles Cooper explains why an important victory by the barons of Silicon Valley will come at your expense.

[RetiredMidn]

Is expensing options really the right answer?

Buffett, et. al., have a point that the dilution represented by
options needs to be disclosed and accounted for, but I've never
seen an explanation of how expensing them is a meaningful way
to address this.

Take a typical (hypothetical) situation where an employee is
granted options on ten thousand shares at $15 per share. Some
press reports describe this a $150,000 in options, implying that
it should be a $150,000 expense. In fact, no value has yet
changed hands, and the options are worthless until and unless
the price of the stock goes up (which doesn't always happen, as I
know from disappointing experience).

If the stock price does go up (to $20 per share, for example),
$150,000 is the amount of money the employee has to PAY (to
the company) to acquire the stock; if sold immediately, the profit
is $50,000. A nice windfall, but not $150,000.

If, on the other hand, the options remain "underwater" (i.e., the
stock price remains below $15), they are worthless, and the
shares never change hands. What, then, is the expense to the
company?

Shareholders are not without disclosure under current practices.
As I understand it, shares are made available for option plans by
a vote of the shareholders, and granting of options are notes
(albeit in footnotes) in company reports. Maybe there's a better
way to disclose shareholder exposure, but I've never seen an
explanation of how the "expense" can be accurately quantified at
the time the options are granted.

[Fray9]

Because..

The options are expenses because they represent physical (well not literally) stocks that are being taken off the market and allocated to the employee. The employee does not compensate the company for the stocks and they are no longer available to be sold to the public for profit. If the stocks are generated by creating new ones rather than allocating existing stocks then it dilutes the stock price for all shareholders.

Hence it is an expense.

Also the large portion of the company that is owned by the employees through stock options represents a rather large chunk of the companies assets that can be liquidated and lost without warning.

Its not fair to the public stockholders when a company suddenly incurs millions of dollars in expense because someone cashed in their options or when in a few days time the company goes from profitable to bankrupt because multiple people cashed in their options and left.

Listing it as an expense from the start makes the company seem slightly less profitable on paper because currently they dont have to list company assets that no longer belong to the company as expenses when it comes to stock options, artificially and incorrectly inflating the companys capital (its borderline fraud).

However, expensing the options is benificial to the company at the same time because it gives them a more realistic view of what they own and have to work with. If the employee returns the stocks to the company then the company benefits and is made to look good from the rise in capital but if the employee cashes in the stocks it still doesnt reflect badly on the company because those stocks were expensed long ago and has no effect at all on the bottom line.

It would also curtail the bad habit of CEOs of tech companies of handing out large portions of the company through stock options without regard for how it will eventually effect the company as a whole. In the short term it seems like a good way to keep good employees, a bonus that doesnt cost the company anything.. until the options are cashed in then the company is hit hard.

These regulations arent about making a company look bad and stifling innovation its about making companies be honest about where they stand financially to the real people that own the company.. the shareholders.

More Left-wing propaganda

Sheesh, would it kill C|Net to ever give the microphone to somebody who is not an out-of-the-closet Socialist?!

To the little man who wrote this fairytale: my company told me that they would cancel stock options all together if the government gave them more red-tape and buracracy. So, I'm gladly KEEPING my stock options, thanks to this vote.

Oh, yeah, and how do you value an option again? Anything you put down is just a guess. So the socialists have answered that with "well, you need to revise that guess constantly and the moving average will show the way". Thats great, but do you have ANY CONCEPT of the paperwork and man hours a task like that generates? No, because you are not a business man. You are a socialist.

"Freedom Fries"?

OK *****, whatever you are trying to say in this article can now be flushed down the toilet. You are a hater. You hate Bush, you hate Republicans, you hate me and my stock options.

Luckily, close-minded people like yourself are currently out of power. Hence the 300-100 "slam-dunk". Keep dissing America and the right to amass wealth and hopefully you will stay out of power for a very, very, long time.

Cheers, to a new millenium!

Gees... ^^

At least Cooper doesn't come off as a rabid 14-year-old. I'd trust him over you any day if that is your level of expressing yourself.

The only one here acting like a hater is you. You look really low-brow defending a president who has shares in Arabic oil companies and the military power to defend those interests.

Calling people names the moment they want to change any legislation that could lessen your profit even the slightest looks supremely neanderthal. But at least you're rich, right?

[djugan]

"Freedom fries" and blue Kool-Ade don't mix well

So much for debating the issues -- we should at least attempt to disagree in a civil manner before going directly to a hateful ad hominem attack.

This approach may have impressed Attila the Hun but it will not influence any rational mind, regardless of politics.

[Maddog27]

Expensing options would decrease usefulness of financial statements

Obviously the author is making a political statement and not looking at the accounting issues. By expensing options, management would have to set the value of the options given. Their is no good way to value those options. Black Scholes is used but even the best academics will tell you that when the stock has high variability the model begins to break down.

Expensing options doe not fix the problem. Oversight by a responsible board is what is needed not increased regulation.