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Big argument about costing of options

  1. hots

    620 posts.
    I've been asked to do some research for someone on the cost of director and employee options to the company issuing these options.

    Basically I'd be interested in everyone's thought's on.
    1. ASX codes of companies who have been rather generous in granting director and employee options over the past year so.
    2. The overall issue of whether people think that the calculated cost of the company issuing these options should be included in the financial accounts of the company.

    There's a big argument going on about this in the US and other countries and the same argument will be played out here. The relevant formal questions appears to be as follows

    "Do you agree with the proposal that transactions whereby an entity purchases goods and services by issuing shares or share options should be recognised in the financial statements, thus resulting in a charge to the income statement when those goods and services are consumed?"

    Two highly conflicting opinions on this come from the Australian Shareholders Association and the Australian Institute of Company Directors.

    Australian Shareholders Association say (my summary of few main points only)
    - yes it's a real cost
    - companies are finding a sneaky way of paying themselves a lot more than the fianncial reports suggest
    - the money belongs to the shareholders

    See for example
    http://www.asa.asn.au/Archive.asp?ArchiveID=180

    Austr alian Institute of Company Directors say (my summary of few main points only)
    - no don't do it
    - it's not a real cost but it does have an impact on share price via dilution
    - it's too complicated to do in some cases
    - they are an incentive and management and employees and therefore shouldn't be discouraged

    See for example http://www.companydirectors.com.au/
    Go to do a search on opitions under Publications and click on.
    Invitation to comment Accounting for share based payment: G4 +1 proposals

    So please give us your cents worth and post a few companies that you think have been a bit too generous.

    Cheers
    hots

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