Before you jump on the ANTI-TECH bandwagon that the media is drumming up please read this:
FROM VLSI's Chip Insider
Taking Stock: Chips, Coffee, Lies, and the San Jose Mercury News versus Intel on Expensing Stock Options.
Last week saw Intel and no less Andy Grove weigh in on the stock option issue. But Andy went where no other CEO has gone before, saying flatly that Intel would not expense stock options. But that it would disclose option details more fully. He gave his arguments and they were pretty cogent. Now if any organization would understand the benefit that stock options have had for the Valley in job and wealth creation, I would think it would be the San Jose Mercury News. I was proven wrong by Dan Gilmore's Saturday editorial titled "Intel got it half right on stock options" (August 10, Pg C1) By the third sentence he writes "Tech companies are adamant in their refusal to account more honestly for the options they throw at executives and other employees." This clear implication that Andy Grove was, at best, being less than honest seems pretty misplaced. But on Monday the 12th, Scott Herhold followed up with the comment that "What's fascinating about the statement from the valley's most respected company was the implicit acknowledgement that the battle has moved beyond Congress and into the market." (SJMN, Pg E1).
Now maybe I'm way off base here, but I thought that most companies have accounted honestly for their stock option grants. I had also figured that anyone would have figured all along that the battle was in the markets and that Congress was just along for the attention all. After all, George has been getting most of it ever since 9/11, so the corporate credibility crisis had to be a great way to get back and even give the President and his staff a few jabs all the while. However, I would think that even the SJMN knows that you can't be convicted of a crime before it was made a crime by law and in this case, no law or standard about expensing options has been passed. Intel, for as far as I know and believe, has met the letter of the law and been quite honest about its options and now it is promising to give out even more and be more forthcoming. So how can that be dishonest?
In any case, clearly the SJMN (as well as many others) believe that the only way to honestly account for options is to expense them. But if you look at the math (this may be a bit hard for them) it doesn't make sense. How can one expense something that doesn't cost anything? Option grants do not affect cash. They affect the share of equity. So, as Andy made the point, the financial impact of options already shows up in the divisor when earnings-per-share is calculated. So to add those above the line would actually distort earnings to the pessimistic side. There is also an extreme level of myopia from the "stock options should be expensed" camp. Expand the field of vision and think of it this way: options are the result of issuing more stock. So, if options should be expensed, should not all stock issuances be expensed? Moreover, what does one do with the money that comes from the sale? If options are expensed, shouldn't the money gained from selling stock be added to the revenue line? Few with any basic understanding of accounting (unless maybe if they used to work for Arthur Andersen) would make these latter arguments. Issuance of stock is issuance of a share of ownership, which value is set by the integral of future earnings potential. So using stock sales in the earnings line would be double counting and would amount to a pyramid scheme. These belong on the Balance Sheet, not on the Profit and Loss page. So one comes back to the conclusion, stock options don't really belong in the expense line.
Now Mr. Gilmore also accuses tech of throwing the options at employees. I doubt this really happens as throwing anything at an employee would at the least amount to harassment under California labor laws and at most constitute an assault, which is a felony in this state. One thing is clear, options are given as compensation. Companies, like Intel, do expect something in return for this compensation. So, they do cost the company and its stock holders a share of equity. This should be accounted for, as Intel has promised to do more thoroughly. So, one has to give Intel credit for offering a new solution to what is clearly a thorny dilemma.
The Chips-to-Coffee* ratio rose again. Proving again that it's not just tech that's getting trashed by the stock market, as one would be led to believe by what they can read.
My $0.02:
Stock options are a valueable asset to this and any industry. They give employees greater stewardship over thier role in the success or failure of a corporation. The awarding of options allows companies to reward their employees with an extremely valuable asset that they can not only benefit financially from, but also as a matter of pride. It gives a reward beyond that of just a paycheck.
I urge you to write to your representatives and encourage them to side with not only corporations, but more importantly, their employees on the issuance of stock options.
On a side note, Coca-Cola Co. does not issue stock options to their employees. They are lobbying heavilly for a bill to require reporting as expenses. It is a means of getting the Unions off their back on the issuance of options to employees.
FROM VLSI's Chip Insider
Taking Stock: Chips, Coffee, Lies, and the San Jose Mercury News versus Intel on Expensing Stock Options.
Last week saw Intel and no less Andy Grove weigh in on the stock option issue. But Andy went where no other CEO has gone before, saying flatly that Intel would not expense stock options. But that it would disclose option details more fully. He gave his arguments and they were pretty cogent. Now if any organization would understand the benefit that stock options have had for the Valley in job and wealth creation, I would think it would be the San Jose Mercury News. I was proven wrong by Dan Gilmore's Saturday editorial titled "Intel got it half right on stock options" (August 10, Pg C1) By the third sentence he writes "Tech companies are adamant in their refusal to account more honestly for the options they throw at executives and other employees." This clear implication that Andy Grove was, at best, being less than honest seems pretty misplaced. But on Monday the 12th, Scott Herhold followed up with the comment that "What's fascinating about the statement from the valley's most respected company was the implicit acknowledgement that the battle has moved beyond Congress and into the market." (SJMN, Pg E1).
Now maybe I'm way off base here, but I thought that most companies have accounted honestly for their stock option grants. I had also figured that anyone would have figured all along that the battle was in the markets and that Congress was just along for the attention all. After all, George has been getting most of it ever since 9/11, so the corporate credibility crisis had to be a great way to get back and even give the President and his staff a few jabs all the while. However, I would think that even the SJMN knows that you can't be convicted of a crime before it was made a crime by law and in this case, no law or standard about expensing options has been passed. Intel, for as far as I know and believe, has met the letter of the law and been quite honest about its options and now it is promising to give out even more and be more forthcoming. So how can that be dishonest?
In any case, clearly the SJMN (as well as many others) believe that the only way to honestly account for options is to expense them. But if you look at the math (this may be a bit hard for them) it doesn't make sense. How can one expense something that doesn't cost anything? Option grants do not affect cash. They affect the share of equity. So, as Andy made the point, the financial impact of options already shows up in the divisor when earnings-per-share is calculated. So to add those above the line would actually distort earnings to the pessimistic side. There is also an extreme level of myopia from the "stock options should be expensed" camp. Expand the field of vision and think of it this way: options are the result of issuing more stock. So, if options should be expensed, should not all stock issuances be expensed? Moreover, what does one do with the money that comes from the sale? If options are expensed, shouldn't the money gained from selling stock be added to the revenue line? Few with any basic understanding of accounting (unless maybe if they used to work for Arthur Andersen) would make these latter arguments. Issuance of stock is issuance of a share of ownership, which value is set by the integral of future earnings potential. So using stock sales in the earnings line would be double counting and would amount to a pyramid scheme. These belong on the Balance Sheet, not on the Profit and Loss page. So one comes back to the conclusion, stock options don't really belong in the expense line.
Now Mr. Gilmore also accuses tech of throwing the options at employees. I doubt this really happens as throwing anything at an employee would at the least amount to harassment under California labor laws and at most constitute an assault, which is a felony in this state. One thing is clear, options are given as compensation. Companies, like Intel, do expect something in return for this compensation. So, they do cost the company and its stock holders a share of equity. This should be accounted for, as Intel has promised to do more thoroughly. So, one has to give Intel credit for offering a new solution to what is clearly a thorny dilemma.
The Chips-to-Coffee* ratio rose again. Proving again that it's not just tech that's getting trashed by the stock market, as one would be led to believe by what they can read.
My $0.02:
Stock options are a valueable asset to this and any industry. They give employees greater stewardship over thier role in the success or failure of a corporation. The awarding of options allows companies to reward their employees with an extremely valuable asset that they can not only benefit financially from, but also as a matter of pride. It gives a reward beyond that of just a paycheck.
I urge you to write to your representatives and encourage them to side with not only corporations, but more importantly, their employees on the issuance of stock options.
On a side note, Coca-Cola Co. does not issue stock options to their employees. They are lobbying heavilly for a bill to require reporting as expenses. It is a means of getting the Unions off their back on the issuance of options to employees.
