A Defense Of Stock Options

from the keep-'em dept

As the arguments over whether or not to expense stock options get more heated, Michael Malone weighs in with his opinion on why they should not be expensed. He makes some compelling arguments about how they helped build Silicon Valley, and that actually expensing high tech options fairly is nearly impossible. I still think he leaves out the most convincing argument – which is that the information is already public and it’s just lazy investors and analysts who can’t be bothered to look at the numbers. Actually expensing the stock options doesn’t necessarily make sense, because it would just be one more made up number on the income statement that wouldn’t reflect reality in any way. That said, I don’t think it would “kill” Silicon Valley either. I think that most companies and analysts would learn to adjust, and someone would find some loophole to get around all of this anyway.


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Comments on “A Defense Of Stock Options”

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4 Comments
dorpus says:

Stock Options: The Standard SiliValley scam

Techies believe in the stock option swindle, because they are given the standard sales pitch of the mythical security guard who retired a millionaire because he got stock options. (Are there any companies that hire their own security guards, by the way?) Or it may appeal to their college-kid political sensibilities by having it described as the “new socialism”.

Stock options are really a way for companies to super-exploit their employees.

1. Companies pay employees low salaries, based on the stock option excuse.

2. The fine print prevents most employees from selling their stocks when the price is high; or at the least, an environment of high peer pressure is maintained so that employees hold on to them.

3. Executives quietly sell all their holdings when the price peaks, so they can abandon the company when it goes down.

4. In effect, the employees get to pay the executive’s tax bill when they had financed their homes and cars on stock options.

Timmmay! says:

Re: Huh?

2. The fine print prevents most employees from selling their stocks when the price is high; or at the least, an environment of high peer pressure is maintained so that employees hold on to them.

There’s no fine print (other than the vesting schedule) for when you can exercise an option (at least for most people. And what peer pressure? Who even knows when I sell my stock.

3. Executives quietly sell all their holdings when the price peaks, so they can abandon the company when it goes down.

Quietly? Except for filing notice of an insider sale with the SEC. Prior to selling. Yeah.

4. In effect, the employees get to pay the executive’s tax bill when they had financed their homes and cars on stock options.

I don’t know where you got this. Just because Enron did it, doesn’t mean everyone did it.

Clearly you know nothing about how options work. Some people actually make money on options and they are not “Wall Street Fat Cats”. Sure, alot of people got suckered into working for startups for worthless options but that is always the risk you take. If it were a sure thing, they wouldn’t be called “options”, they be called “money”.

Karl Burtz says:

Re: Stock Options

The best solution I’ve heard for the stock option problem (on NPR’s “Market Place”)is to require the companies who give them to buy them on the open market. Options are essentially a “call” on a stock for a certain period of time. The company would buy the call which the employee could exercise during the option period. The employee would pay the company the price of the call when he excercised the option and the price would be fair since it was set by the market. I’m not certain what, if anything, would have to be shown on the company’s financial statement. I would guess only the cost of the calls not purchased by the employee. Whatever it is, it should be fairly easy to calculate since the option price and the share value when exercised are known values.

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