Mattu's Tax Loss Picks

[Bird of Prey]

Again, my two issues are that -- 1) the options *cost* more than the employee actually generates and 2) they all too often get abused and handed out like food stamps..


Suppose, for a moment that, because you offer a stock option program you are able to hire an employee at $50K instead of the going rate of $75K when SO's aren't a part of the equation. Now when he adds that $100 of value to the company (from your example) and is issued the $150 of options, it's in reality just "filling the gap" between his salary and what his salary *should* have been. Now, if the stock performs well enough that his "options" become worth more than the $150, the employee's perception is that he has come out ahead. Except for the fact that he added value to the company on two occasions, both he and you would be right, and he would be taking advantage of whomever purchases the stock from him at the "inflated price".
But the price is not inflated. Because of the structure of the deal the company has saved costs at several places. First in the employee's salary, since it is lower that the *norm* there are the obvious savings there, but there are also other savings that are not so obvious, such as the expenses for taxes and for other benefits that are directly related to the size of the salary. The company, by reducing these immediate costs now has a better chance of reaching profitability, which will increase the stock price. Further, because the company can allocate the cash saved by this process to another (perhaps more conducive to producing profit) area of the business, more value may be added to the bottom line.
Simply put, the cost of the options granted may have already been recouped *before* the employee's efforts added an additional $100 to the company bottom line that earned him the options.
Therefore, while I do not agree that options *cost* more than the employee generates (it *can* happen, but it is not necessarily a function of issuing options), I will agree that they can be abused and issued to employees that have not "earned" them and/or in quantities well in excess of what was earned. restrictions such as I proposed earlier would help in reducing the number of opportunities for criminal abuse. I seriously doubt however that there is any way to prevent a business (or individual) from acting foolishly.


Now, somebody tell me why, on a Saturday night at 9:00 pm, I'm at home writing about stock options and book value dilution.

Well, let's see...
It wasn't a full moon, so it couldn't be you were hiding out to protect the public from your werewolf persona.

You've seriously misunderstood the task "setting priorities".

You're having as much trouble getting a date as almost every other "pre-millionaire" geek or pseudo-geek on the planet.

You don't like Craig T. Nelson or Ving Rhames or Jaclyn Smith.

You were so depressed after "wide left", you couldn't muster the gumption to do anything else.

You were so depressed after LSU...LSU? When does basketball season start?

You've really become too passionate about the "stock options thing" and need to step back and take a breather.

Have a great day!


The Bird of Prey
#board-381

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