The difference between those two is not for the military personnel to decide. They sign up to fight under the commander-in-chief, whoever they might be, or however they might feel about him, or however they might feel about what he's asked them to fight for.
But they do have a value. Instead of giving them away you could have sold them. You are out the amount you could have sold them for. The problem is that right now most companies don't quantify their available option assets, so expensing options is a decrease of an asset that isn't currently on the books. However, if a company doesn't keep enough records to handle such transactions properly, they probably shouldn't be engaging in them.
They should be double-accounted for. They are an expense BECAUSE you could have sold the option on the open market instead of giving it away. The amount you could have sold it for on the open market is the value you should expense. Later, _if_ the option is exercised, it is a cash gain and a dilution of shares.
But right now, since you could have sold the option to someone else instead of giving it away, then yes, it is an expense.
I think the big problem is that companies don't have the accounting mechanism in place to know the "opportunity value" (for lack of a better term) of their treasury stock. Therefore, while options should be expensed, likewise the treasury of potential opportunities should be valuated and added as an asset. Until companies find a way to valuate the "opportunity asset" of their stock, they should not issue options in compensation. If they have no means of adequately recording and valuating transactions, they should not enter into them.
However, they miss the fact that if they had given the _same options_ on the open market they could have been compensated for them. Instead they gave them to employees. Clearly if you have something of value (no matter what it is) and you give it away instead of selling it, you are incurring an expense are you not?
They are an expense when issued. Instead of selling the stock right then, the company is holding on to it, and thus not receiving the money inflow it could have received by selling it. This money could have at least been put in the bank for the duration of the option and gained interest. Therefore, the minimum cost of an option, even unexercised, is the interest rate of the strike price. This is oversimplifying a bit, because right now accountants don't take that possibility into account when valuating the company (so it's essentially expensing from an asset not recorded on the books). However, if a company doesn't keep the records necessary to know the value of the options they are granting, they probably shouldn't be granting the options in the first place.
"I oppose the expensing of options because there is often no good way to value them"
That is about the worst reason I can think of for opposing options. As Warren Buffet pointed out, there is no good way to value depreciation on a corporate airplane, but you do so anyway. Leaving out expenses because you aren't sure of their exact value is irresponsible.
If you have a share that you are willing to let go into the open market for cash, but instead you keep it on behalf of an individual for them to do so at a later date, you are essentially extending them an interest-free loan of that amount of money. One method of options expensing is to charge it interest based on the strike price. If they company would have just sold the stock, they would have gained money immediately, and been able to at least put it in the bank. Since they did an option, they are unable to use that money and the interest, so the potential interest that is unrealized is an expense.
Other methods are available, too. The dilution is already calculated in a different place, and therefore the dilution itself is not an expense (for example, it is not an expense for them to simply sell the shares outright, either, although the dilution effects are the same).
Even more so, the _time_ that the shares were held by the company and not sold until the option is exercised was essentially cash that could have brought in interest from a bank or investment but did not.
I guess my question is, "what is the benefit of expensing options over the current way of doing things?"
A great read on the subject is Warren Buffet's 1992 letter to shareholders. It's a ways down - the section is called "Two New Accounting Rules and a Plea for One More" and it's in the second part of that section. Anyway, to answer your question:
1) Options have value, otherwise they wouldn't be given as compensation.
2) Value which is given for a service should be expensed.
Now, the trouble comes with the valuation. There are several methods of option valuation, each of which has their shortfalls:
1) Market price of options: basically you look at the going rate for the kind of options you are giving, and you expense that. However, this has several problems:
* the leverage of potential options on current stock shares are not included in the books right now, so a loss from options expensing will decrease book value, although that value was never on the books to begin with
* you need to unexpense unused options, which leads to unnecessary volatility when options expire
2) The Black-Scholes option-pricing model. Basically, this says that if you give an option, you are forgoing cash that you could have received immediately from the sale of that stock. Therefore, the cost of the option is basically interest on a loan of the value of the stock - it's basically the same way you might expense an interest-free loan.
One of the problems with this model is again that you are charging expenses that aren't on the books - you would not have given yourself an expense had you done nothing with the stock.
3) Warren Buffet's method - I can't remember what this is at the moment.
One other issue with stock options is that it dilutes the value of stock. Let's say, for instance, that you have issued 1,000 shares of stock, and you keep 1,000 shares in your treasury. That year, you make a profit of $1,000. You then distribute it to the shareholders, who get $1 each. However, let's say that you grant all of the remaining 1,000 shares from your treasury in the form of options, and all of the options are exercised by the recipients. That means that all 2,000 shares are in circulation. So, if you make the same profit of $1,000, each shareholder only gets fifty cents. However, these numbers are reflected in the dilution of stock.
It's been a while, but last time I used VS, it has several problems:
1) it often did automated code generation when library calls would be the better choice
2) all database handling used SQL, which can be a pain in the butt, especially compared to the Delphi tables which you can simply link in master->child references. The database integration with Delphi made writing database apps absolutely trivial, where you could write a decent database app without even knowing SQL.
In addition, Delphi did NOT _remove_ the internals from you if you needed to access them. It had shortcuts for the majority of operations, but did not make the internals inaccessible. It was a perfect balance.
The Delphi language itself is pretty nice, too. Kind of what C++ should have been.
I have a feeling _the_ disaster will occur either by people misusing stolen identities all over the web causing chaos, or a worm that overwrites flash BIOS's (imagine a virus that rendered your computer completely inoperable without a _hardware_ fix).
Actually, the government could help but not in the way the parent was mentioning. If _they_ decided that monoculture was bad, that would be a boom to competitors, and increase competition throughout the market.
I'm working right now with a small company that has a strict, 100% Microsoft policy. Interestingly, upon inspection, I found out that very little of the software they currently use is Microsoft-based. In fact, their website is hosted on a Linux server running PHP, even though their policy says this is completely wrong.
What I found out is that they had hired a consultant to write their software policy. Apparently, it was a pro-Microsoft shill. The business owners think it's great that they have a software policy, and give it to all of their vendors. I've found that none of their vendors care about it, and the business owners either don't know or don't care that nothing they use actually follows the policy that they distribute to everyone.
Oh my goodness you are so correct. So many people in the Microsoft world think _nothing_ of unauthorized software copying. They don't care that it's illegal. They don't care at all.
"Making money is a beautiful thing...unless you're doing it through patently illegal activities."
Also unless you are exploiting others in a legal way. The "invisible hand" of Adam Smith does not mean that businesses should not care about others, but that they don't have to keep the global economic picture in mind when making decisions. The obligation to responsibility, ethics, and morality is still there.
On another note, while I am pro-business, I am anti-corporation. I wrote a short essay about it here. Basically, with corporations, the owners have neither control nor responsibility, but the people who do have control only have a responsibility to the shareholders. However, the only way they can communicate is through stock price. This makes those in control only answerable to the stock price, and not answerable to ethical obligations that the shareholders may themselves believe in.
Reminds me of a magazine advertisement I read a long time ago for Windows NT 4. Basically, the gist of the article was this business owner saying "I couldn't keep my systems running with Windows 95, so I switched to Windows NT".
I thought it was hilarious that they were using the fact that the product they already sold you was too terrible to use as a REASON to use their other product. I wish I had a copy of that advertisement.
"Oh yeah, everyone had already installed Windows because they had the most polished and useful applications available."
Are you honestly comparing Windows 3.1 and Windows 95 to the other operating systems available at the time, like MacOS and OS/2? I hope you aren't serious.
Slashdot Mirror
The difference between those two is not for the military personnel to decide. They sign up to fight under the commander-in-chief, whoever they might be, or however they might feel about him, or however they might feel about what he's asked them to fight for.
But they do have a value. Instead of giving them away you could have sold them. You are out the amount you could have sold them for. The problem is that right now most companies don't quantify their available option assets, so expensing options is a decrease of an asset that isn't currently on the books. However, if a company doesn't keep enough records to handle such transactions properly, they probably shouldn't be engaging in them.
They should be double-accounted for. They are an expense BECAUSE you could have sold the option on the open market instead of giving it away. The amount you could have sold it for on the open market is the value you should expense. Later, _if_ the option is exercised, it is a cash gain and a dilution of shares.
But right now, since you could have sold the option to someone else instead of giving it away, then yes, it is an expense.
I think the big problem is that companies don't have the accounting mechanism in place to know the "opportunity value" (for lack of a better term) of their treasury stock. Therefore, while options should be expensed, likewise the treasury of potential opportunities should be valuated and added as an asset. Until companies find a way to valuate the "opportunity asset" of their stock, they should not issue options in compensation. If they have no means of adequately recording and valuating transactions, they should not enter into them.
However, they miss the fact that if they had given the _same options_ on the open market they could have been compensated for them. Instead they gave them to employees. Clearly if you have something of value (no matter what it is) and you give it away instead of selling it, you are incurring an expense are you not?
They are an expense when issued. Instead of selling the stock right then, the company is holding on to it, and thus not receiving the money inflow it could have received by selling it. This money could have at least been put in the bank for the duration of the option and gained interest. Therefore, the minimum cost of an option, even unexercised, is the interest rate of the strike price. This is oversimplifying a bit, because right now accountants don't take that possibility into account when valuating the company (so it's essentially expensing from an asset not recorded on the books). However, if a company doesn't keep the records necessary to know the value of the options they are granting, they probably shouldn't be granting the options in the first place.
"I oppose the expensing of options because there is often no good way to value them"
That is about the worst reason I can think of for opposing options. As Warren Buffet pointed out, there is no good way to value depreciation on a corporate airplane, but you do so anyway. Leaving out expenses because you aren't sure of their exact value is irresponsible.
If you have a share that you are willing to let go into the open market for cash, but instead you keep it on behalf of an individual for them to do so at a later date, you are essentially extending them an interest-free loan of that amount of money. One method of options expensing is to charge it interest based on the strike price. If they company would have just sold the stock, they would have gained money immediately, and been able to at least put it in the bank. Since they did an option, they are unable to use that money and the interest, so the potential interest that is unrealized is an expense.
Other methods are available, too. The dilution is already calculated in a different place, and therefore the dilution itself is not an expense (for example, it is not an expense for them to simply sell the shares outright, either, although the dilution effects are the same).
IANAA
Even more so, the _time_ that the shares were held by the company and not sold until the option is exercised was essentially cash that could have brought in interest from a bank or investment but did not.
If compensation is not an expense, then what is it?
I guess my question is, "what is the benefit of expensing options over the current way of doing things?"
A great read on the subject is Warren Buffet's 1992 letter to shareholders. It's a ways down - the section is called "Two New Accounting Rules and a Plea for One More" and it's in the second part of that section. Anyway, to answer your question:
1) Options have value, otherwise they wouldn't be given as compensation.
2) Value which is given for a service should be expensed.
Now, the trouble comes with the valuation. There are several methods of option valuation, each of which has their shortfalls:
1) Market price of options: basically you look at the going rate for the kind of options you are giving, and you expense that. However, this has several problems:
* the leverage of potential options on current stock shares are not included in the books right now, so a loss from options expensing will decrease book value, although that value was never on the books to begin with
* you need to unexpense unused options, which leads to unnecessary volatility when options expire
2) The Black-Scholes option-pricing model. Basically, this says that if you give an option, you are forgoing cash that you could have received immediately from the sale of that stock. Therefore, the cost of the option is basically interest on a loan of the value of the stock - it's basically the same way you might expense an interest-free loan.
One of the problems with this model is again that you are charging expenses that aren't on the books - you would not have given yourself an expense had you done nothing with the stock.
3) Warren Buffet's method - I can't remember what this is at the moment.
One other issue with stock options is that it dilutes the value of stock. Let's say, for instance, that you have issued 1,000 shares of stock, and you keep 1,000 shares in your treasury. That year, you make a profit of $1,000. You then distribute it to the shareholders, who get $1 each. However, let's say that you grant all of the remaining 1,000 shares from your treasury in the form of options, and all of the options are exercised by the recipients. That means that all 2,000 shares are in circulation. So, if you make the same profit of $1,000, each shareholder only gets fifty cents. However, these numbers are reflected in the dilution of stock.
It's been a while, but last time I used VS, it has several problems:
1) it often did automated code generation when library calls would be the better choice
2) all database handling used SQL, which can be a pain in the butt, especially compared to the Delphi tables which you can simply link in master->child references. The database integration with Delphi made writing database apps absolutely trivial, where you could write a decent database app without even knowing SQL.
In addition, Delphi did NOT _remove_ the internals from you if you needed to access them. It had shortcuts for the majority of operations, but did not make the internals inaccessible. It was a perfect balance.
The Delphi language itself is pretty nice, too. Kind of what C++ should have been.
I have a feeling _the_ disaster will occur either by people misusing stolen identities all over the web causing chaos, or a worm that overwrites flash BIOS's (imagine a virus that rendered your computer completely inoperable without a _hardware_ fix).
Actually, the government could help but not in the way the parent was mentioning. If _they_ decided that monoculture was bad, that would be a boom to competitors, and increase competition throughout the market.
I'm working right now with a small company that has a strict, 100% Microsoft policy. Interestingly, upon inspection, I found out that very little of the software they currently use is Microsoft-based. In fact, their website is hosted on a Linux server running PHP, even though their policy says this is completely wrong.
What I found out is that they had hired a consultant to write their software policy. Apparently, it was a pro-Microsoft shill. The business owners think it's great that they have a software policy, and give it to all of their vendors. I've found that none of their vendors care about it, and the business owners either don't know or don't care that nothing they use actually follows the policy that they distribute to everyone.
Oh my goodness you are so correct. So many people in the Microsoft world think _nothing_ of unauthorized software copying. They don't care that it's illegal. They don't care at all.
"Making money is a beautiful thing...unless you're doing it through patently illegal activities."
Also unless you are exploiting others in a legal way. The "invisible hand" of Adam Smith does not mean that businesses should not care about others, but that they don't have to keep the global economic picture in mind when making decisions. The obligation to responsibility, ethics, and morality is still there.
On another note, while I am pro-business, I am anti-corporation. I wrote a short essay about it here. Basically, with corporations, the owners have neither control nor responsibility, but the people who do have control only have a responsibility to the shareholders. However, the only way they can communicate is through stock price. This makes those in control only answerable to the stock price, and not answerable to ethical obligations that the shareholders may themselves believe in.
"Visual Studio is not only not useless, it is quite possibly the greatest IDE ever created."
Doesn't, and never has, held a candle to Delphi.
Reminds me of a magazine advertisement I read a long time ago for Windows NT 4. Basically, the gist of the article was this business owner saying "I couldn't keep my systems running with Windows 95, so I switched to Windows NT".
I thought it was hilarious that they were using the fact that the product they already sold you was too terrible to use as a REASON to use their other product. I wish I had a copy of that advertisement.
If they wait too long the patents will expire.
If we had three major browsers - IE, Moz, and Opera, any given exploit wouldn't have the same impact as an IE exploit does now.
Yeah, but remembering the cookies is a pain in the butt.
"How did they have the muscle to do that?"
IBM.
"Oh yeah, everyone had already installed Windows because they had the most polished and useful applications available."
Are you honestly comparing Windows 3.1 and Windows 95 to the other operating systems available at the time, like MacOS and OS/2? I hope you aren't serious.
"They're just software, and a binary compiled and statically linked for, say, i386should run on most Linux x86 boxes, right?"
:)
But it needs a standard configuration to exploit. There's no such thing as a standard Linux configuration
What email software would it exploit? Postfix? Exim? qmail?
What webserver would it exploit? Boa? Zeus? Apache 1.3? Apache 2.0? Which configurations?
What pop3 server would it exploit?
Which NFS implementation would it target?
Linux is not a monoculture. Worms rely on massively similar setups to propogate themselves. Linux simply does not offer that.
"That is when the worms and whatnot will spread like wildfire."
Linux is not a monoculture like Windows is. Therefore, worms will not be able to spread as easily or as fast.