IP: Re: Time to Look at Stock Options' Real Cost

[David Farber <dave () farber net>]

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> Date: Fri, 26 Oct 2001 07:32:28 -0700
> To: farber () cis upenn edu
> From: "Joseph C. Pistritto" <jcp () jcphome com>
> Subject: Re: IP: Re: Time to Look at Stock Options' Real Cost
> Cc: "Jonathan S. Shapiro" <shap () eros-os org>
>
> I though the numbers here were high.  As you can see by this article:
>
> http://www.fool.com/portfolios/rulemaker/2000/rulemaker000218.htm
>
> Microsoft's option plan last year amounted to 8% of capitalization over 
> the previous *three* years.  or less than 3% per year.
> What's more, its common for companies to "fund" stock plans through 
> repurchases of stock when it's low (I know Oracle and Cisco are doing that 
> now for instance).
>
> It can be argued that helps shareholders when it happens.   When i was at 
> Oracle, The "stock plan" in current use for employees usually had 1-2% of 
> total capitalization in stock to be issued.
> (there was another plan with a similar amount that was used for higher 
> level executives).  Usually a "plan" would last 1-2 years then a new one 
> would be approved by shareholders.
>
> One thing the argument here doesnt address is the differences between 
> Incentive Stock Options (which most startups issue to employees) and 
> Non-Qualified Stock Options, which most larger companies issue to 
> employees.  (I dont know which kind MIcrosoft issues, i've never 
> participated in the Microsoft plan).  When I was at Oracle, I got both 
> kinds of options, but ISOs were what i got early in my career there.  To 
> the employee, Non-Quals are much less attractive (because they're ordinary 
> income when you exercise them, not long term capital gains).


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