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"Stock options" are "toilet paper&q (5.00 / 1) (#1) |
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by moriveth on Mon Feb 25th, 2002 at 09:15:52 AM PST |
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I think it's pretty obvious from the current results that fellow Adequids are counting their stock options as annual household income. Yet, over the last few years, we've all found ourselves subject to repeated blunt demonstrations of the dangers of executive compensation in the form of "paper money" (i.e., stock options). I, for one, will never again accept stock options for the majority of my compensation.
For those of you still enticed by fat stock options--get a clue. These days, it's better to make $700k in cash than $7m in stock options; any company making you such an offer is bound to go bust no matter how many nerds you fire. It ain't the 90's anymore, fellas. |
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The value of options (5.00 / 1) (#5) |
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by Ernest Bludger on Mon Feb 25th, 2002 at 08:09:41 PM PST |
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These days, it's better to make $700k in cash than $7m in stock options;
You raise an interesting point here. I'm assuming that you're not saying that you'd sooner receive $700,000 in a year compared with $7million. That would be silly. I suspect you're alluding to the fact that valuation of employee and executive stock options is inherently problematic, and that what you're told is an options package worth $7million is in fact worth up to $7m less than that. There are some well-known option pricing models. The most well-known would be the Black-Scholes pricing model.[1] Put simply, this formula calculates the value of an option as a function of current stock price, exercise price, interest rate, time to expiration of the option, and the volatility of the stock price. However, limitations of the model are well known. For example, most options awarded in the US (I assume you're in the US) can't be exercised immediately, but rather only on the expiration date. The B-S model assumes exercise at any time up until expiration. There are many other limitations. Trouble with options is that they are often an attractive form of pay to companies as they are not recorded as an expense in the accounts (provided they are structured `correctly').[2] That's right. Your $700,000 in cash pay is deducted from profit, but your $7million of options isn't. This provides an incentive for firms to issue more of their pay in the form of options than cash - it increases profit!! This may help explain the increase in use of options in the last 20 years. Options are meant to align incentives of managers and shareholders [i.e., how do you get your managers to think like shareholders? You give them options so that they are rewarded if the share price goes up]. However, the exposure to firm-specific risks essential for getting the right incentives also imposes a cost on managers by compelling them to hold less than fully diversified investment portfolios. Managers therefore value their options at less than the option's market value. This can be thought of as a deadweight cost of options. Recent research [3] suggests that this cost can be quite large - managers at the average NYSE firm value their options at 70% of their market value, while managers at the average NASDAQ firm value their options at only 53% of the cost to the firm. So yep, you're right - be careful if you're accepting an options package. You're being paid to take on risk, and that has a potential downside. [1] Black, F., & M. Scholes, 1973. "The Pricing of Options and Corporate Liabilities", Journal of Political Economy 81, 637 - 654. [2] This is true for most accounting jurisdictions. For U.S.reporting rules, see APB 25, "Accounting for stock issued to employees" (1972) , and SFAS 123, "Accounting for Stock-Based Compensation" (1996). [3] Meulbroek, L, (2001), "The Efficiency of Equity-linked Compensation: Understanding the Full Cost of Awarding Executive Stock Options", Financial Management - Summer, 5-44. |
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Black & Scholes (5.00 / 1) (#6) |
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by Anonymous Reader on Tue Feb 26th, 2002 at 02:37:23 AM PST |
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There are some well-known option pricing models. The most well-known would be the Black-Scholes pricing model.[1] Put simply, this formula calculates the value of an option as a function of current stock price, exercise price, interest rate, time to expiration of the option, and the volatility of the stock price.
I notice you don't mention dividends as a pricing parameter - very "new economy". |
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Ahhh, dividends (& early exercise) (5.00 / 1) (#7) |
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by Ernest Bludger on Tue Feb 26th, 2002 at 03:13:12 AM PST |
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I notice you don't mention dividends as a pricing parameter - very "new economy". Well spotted. The original Black-Scholes formula assumes a "European" call option [no early exercise] and that the underlying share pays no dividend. If the underlying share does pay dividends, you (and I) would need to use the ex-dividend share price to properly value the option. If you or I wanted to take into account early exercise (i.e., a patriotic American option) we'd probably use Roll (1977) or Whaley's (1981) method of solving a polynomial approximation for the call option price, or we'd use the binomial approach. More likely we'd just say "f*^k it, let's sit down and have a beer, there are g*&ks with financial calculators that can price these things for us". And maybe we'd think of those that have no options. |
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Valuing Options (none / 0) (#10) |
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by Anonymous Reader on Tue Feb 26th, 2002 at 10:53:00 AM PST |
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As it happens, I have just received a letter informing me of a modest grant of stock options. The big print prominently quotes a dollar value for the options. The small print says:
Stock option awards have been assigned a hypothetical value using a Black Scholes type formula that is 40% of the underlying shares multiplied by the strike price. Sounds like the geeks with the financial calculators don't have to work too hard. |
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I think they're dudding you... (none / 0) (#11) |
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by Ernest Bludger on Tue Feb 26th, 2002 at 06:45:12 PM PST |
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if they're using 40% * strike price * # underlying shares. That's definitely NOT Black-Scholes. Simulations suggest that 25% is closer to the mark. Hope you make a mint, though. |
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The More Obvious Easier Answer..... (none / 0) (#12) |
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by izzi on Wed Feb 27th, 2002 at 11:39:10 AM PST |
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the adequoids are just lying. why go through such flips and twists when the flat lying answer is much easier and simpler to apply??? |
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Indeed. (none / 0) (#13) |
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by tkatchev on Wed Feb 27th, 2002 at 12:49:12 PM PST |
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It's all just a trick the Man uses to keep us dumb people opressed. -- Peace and much love... |
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I'm sorry. (none / 0) (#15) |
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by Ernest Bludger on Wed Feb 27th, 2002 at 04:14:12 PM PST |
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You're probably right. It just upsets me to think that people in power could possibly lie to us. Especially if they are our bosses. And really especially over matters financial. I mean, isn't there anything that is sacred anymore? *sigh* |
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Wrong (none / 0) (#18) |
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by Anonymous Reader on Fri Mar 1st, 2002 at 12:51:34 PM PST |
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I know it's comforting for you to think that anyone who claims to be making more than you is deluding themselves, but it's you who's in denial. My household income really is around $250K (two senior engineers' salaries, plus bonuses). Last year I more than doubled that figure because of options. That won't happen again this year, or next, probably, but counting the options as *zero* would be pretty unrealistic too. Some of my options are already in the money again. Unless this economic downturn lasts a full decade, more of my old options are likely to join them, and I'll be getting new ones at market value or better as well.
Get over it. These grapes don't taste sour at all. |
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The Democrats are right (5.00 / 2) (#2) |
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by Anonymous Reader on Mon Feb 25th, 2002 at 09:54:53 AM PST |
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One of the things that we keep hearing is that "the rich keep getting richer and the poor keep getting poorer." The results of this poll (as of right now) reinforce this notion. There are currently two spikes... one at the lower-class end of the poll ($50K-$100K) and one at the upper-class end (more than $5 million) but only a handful of votes in between. What ever happened to the middle class? Now that Bush is in office I think he needs to recognize that trickle-down "Reaganomics" doesn't work. These huge tax cuts and corporate loopholes are going to elevate a select few to billionaire status and make the rest of us live in squalor. Somebody at adequacy should mail this poll to the White House. |
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Are you really so stupid? (none / 0) (#3) |
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by Anonymous Reader on Mon Feb 25th, 2002 at 06:46:00 PM PST |
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You take an anonymous internet poll to be an accurate depiction of income distribution in America?
Every day, I get another reason to despise and ridicule liberals and leftists. Idiots like you really need to move to Europe. Or Canada. Or anywhere but here. But please, move. |
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wow fucker (none / 0) (#14) |
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by Anonymous Reader on Wed Feb 27th, 2002 at 01:59:12 PM PST |
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Go to hell god damn American, what the guy said abotu rich getting richer and poor getting poorer is totally right..... so go get fucked by a cow :)............. Bush is a totally dumbass so are all the Americans..... well most of them
Americans are racist, not patriotic <sp>, racist |
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Wow, poor grammarian. (5.00 / 2) (#16) |
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by Slubberdegullion on Wed Feb 27th, 2002 at 07:34:49 PM PST |
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First of all, an ellipsis is three dots. It should be used sparingly. Secondly, your colon is superfluous and your closing parenthesis has no corresponding opening parenthesis. Thirdly, the words 'damn', 'abotu', 'totally' and 'dumbass' should be replaced by 'damned', 'about', 'total', and 'dumbass and'. Besides these grammatical mistakes, your 'arguments' are laughable. In fact, I am sure that most of the readers of this site are laughing at them. |
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HAHAAHAHAA (none / 0) (#17) |
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by PotatoError on Thu Feb 28th, 2002 at 08:31:58 AM PST |
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"closing parenthesis has no corresponding opening parenthesis"
:) :) :) major sin <<JUMP! POGO POGO POGO BOUNCE! POGO POGO POGO>> |
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Well... (none / 0) (#38) |
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by Anonymous Reader on Fri Mar 8th, 2002 at 11:07:57 AM PST |
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First of all, an ellipsis is three dots. It should be used sparingly.
Actually...they should be used sparingly... |
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Hehehe (none / 0) (#26) |
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by Anonymous Reader on Tue Mar 5th, 2002 at 07:21:01 AM PST |
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I may be in the lowest end of this scale, but I LIVE ALONE! That doesn't exactly make me poor, now does it? |
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good grief (none / 0) (#27) |
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by nathan on Tue Mar 5th, 2002 at 08:07:33 AM PST |
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$50,000 ÷ 365 gives $137 per day. That's starvation, especially given the scarcity of staples such as agave and caviar these days. As for living alone, I'd say you are spiritually impoverished and lonely, if nothing else. Nathan -- Li'l Sis: Yo, that's a real grey area. Even by my lax standards. |
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Junior, It's called a Polarization (none / 0) (#34) |
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by innominate on Thu Mar 7th, 2002 at 11:07:42 AM PST |
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Democrats, aside from being pseudo-altruistic, are hiding a closet hunger for money. You give any Democrat $10M and he will be a Republican before you know it. Get a clue. |
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Hah! (none / 0) (#40) |
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by Anonymous Reader on Fri Mar 8th, 2002 at 08:22:12 PM PST |
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This is such an Aqeduacy.org comment. Brilliant. |
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No Category For Me (5.00 / 1) (#4) |
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by jvance on Mon Feb 25th, 2002 at 07:59:12 PM PST |
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According to my accountants, for tax purposes I lost 2.4 million dollars last year. -- Adequacy has turned into a cesspool consisting of ... blubbering, superstitious fools arguing with smug, pseudointellectual assholes. -AR |
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Dumb Ass (none / 0) (#8) |
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by Anonymous Reader on Tue Feb 26th, 2002 at 03:26:09 AM PST |
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No actually, Idiots like ou need to move. I think Antartica is best. After all you are the one who took what was voted on and the responses seriously.
I think some tree in N.C. is working overtime to keep your dumb ass alive. |
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Excuse my ignorance, (none / 0) (#9) |
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by Ernest Bludger on Tue Feb 26th, 2002 at 03:44:22 AM PST |
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but where exactly is Antartica? I am interested in geography, and am thus aware that there's a big chunk of ice forming a continent at the 'bottom' of the planet, but that's generally known as Antarctica. See? |
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I think it is obvious... (none / 0) (#19) |
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by Anonymous Reader on Sat Mar 2nd, 2002 at 02:00:47 AM PST |
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I think it is obvious that about 70% of people voting in this poll *lied*. Aww, cmon, be an Anonymous Reader and fess up. Are you all sure you don't really belong on slashdot with the other wannabes? |
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no really (none / 0) (#20) |
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by Anonymous Reader on Sat Mar 2nd, 2002 at 03:07:57 PM PST |
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I do earn that much and hate how much of it i have to pay for those lay abouts who won,t find work. |
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Really? (none / 0) (#21) |
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by jvance on Sun Mar 3rd, 2002 at 12:00:28 PM PST |
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1) How much is "that much"?
2) Assuming you mean more than 5 million a year, it's patently obvious you're lying. See, people who make that much don't do their own typing. They hired skilled professionals who know how to proofread. Your comment is a testament to your mendacity. -- Adequacy has turned into a cesspool consisting of ... blubbering, superstitious fools arguing with smug, pseudointellectual assholes. -AR |
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*household* income (none / 0) (#22) |
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by because it isnt on Mon Mar 4th, 2002 at 04:01:20 AM PST |
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Assuming you mean more than 5 million a year, it's patently obvious you're lying. You are, of course, making the assumption that the honourable AR is not a member of a Catholic family. I have seen documentaries that reveal the financial wealth that can collectively be earned by such large families. adequacy.org -- because it isn't |
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More likely (none / 0) (#23) |
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by jvance on Mon Mar 4th, 2002 at 08:41:42 AM PST |
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he's some filthy rich industrialist's catamite. -- Adequacy has turned into a cesspool consisting of ... blubbering, superstitious fools arguing with smug, pseudointellectual assholes. -AR |
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And what about less? (none / 0) (#24) |
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by Anonymous Reader on Tue Mar 5th, 2002 at 01:05:02 AM PST |
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How can anyone design a poll like this and not start with $0 - $50000? It's the ONLY category not represented. Hell of an assumption. |
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It is a reasonable assumption. (none / 0) (#25) |
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by moriveth on Tue Mar 5th, 2002 at 02:27:06 AM PST |
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I very much doubt those pitiful wage slaves who earn under $50,000 per annum own computers, much less read adequacy. |
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More likely (none / 0) (#28) |
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by because it isnt on Tue Mar 5th, 2002 at 01:44:50 PM PST |
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that people earning under $50000 a year simply do not exist.
After all, it explains many things. Why does nothing ever get done for poor people in your country? The answer is quite obvious - poor people don't actually exist, so there is no need to do anything. Likewise, children, students, the homeless, the unemployed, women and pensioners are existentially challenged, and are not a political problem. Have you noticed that when the topic of such non-existant people is raised, it's always a whining liberal that is driving the conversation? I think we can safely conclude that people earning under $50000 a year can be categorised as "liberal myths". Actually, better make that $500000 - better safe than sorry. adequacy.org -- because it isn't |
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no it isn't (none / 0) (#30) |
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by gid on Wed Mar 6th, 2002 at 01:22:50 PM PST |
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I make 40k as web programer, I live with another guy, but I definitely don't consider his income "household income", nor do I even have any idea what he makes, I really don't care. We just split the bills.
Oh and I have way, way too many computers, no car payment, looking into to possibly buying a house, etc. You'd be suprised how far 40k goes if you're smart about things. |
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I suppose subsistence is possible (none / 0) (#31) |
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by nathan on Wed Mar 6th, 2002 at 07:03:27 PM PST |
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...but hardly adeqaute. Nathan -- Li'l Sis: Yo, that's a real grey area. Even by my lax standards. |
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Subsistence (2.00 / 1) (#32) |
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by because it isnt on Thu Mar 7th, 2002 at 03:07:27 AM PST |
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Tell me again why you don't own a piano, Nathan. adequacy.org -- because it isn't |
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Because. (none / 0) (#36) |
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by tkatchev on Thu Mar 7th, 2002 at 12:19:34 PM PST |
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Music doesn't pay. Unless you are into one of those "wandering musican" roles; in which case, though, be sure you have a strong liver. It's the wandering musician's professional body organ.
-- Peace and much love... |
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The shallowness of homosexuality is all too clear (none / 0) (#33) |
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by Adam Rightmann on Thu Mar 7th, 2002 at 09:37:48 AM PST |
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You are apparently a couple, but you don't consider his income as yours, he probably doesn't consider yours as his, and as soon as you tire of each other you will go onto to another sodomitic liaison. If you gay folk would settle down permanently, as good Catholic couples do, your lifetstyle would be slightly more palatable. A. Rightmann |
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But of course. (none / 0) (#35) |
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by tkatchev on Thu Mar 7th, 2002 at 12:17:33 PM PST |
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How can you have depth in a relationship if it is fundamentally without any responsibilities attached to it?
Even heterosexual relationships become serious only once children come into the picture. Without children, any relationship is just animalistic sex-crazed adultery. -- Peace and much love... |
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I'm one of 'em (none / 0) (#29) |
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by Anonymous Reader on Wed Mar 6th, 2002 at 12:39:06 AM PST |
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<p>For the past two years, my income has been about $40000. The glory of owning your own business.</p>
<p>The biggest disadvantage of my low income is that I couldn't vote in this poll.</p> |
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what a boy's club (none / 0) (#37) |
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by Anonymous Reader on Thu Mar 7th, 2002 at 01:30:08 PM PST |
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Nobody earns less than $ 50,000.00 a year here ? Yack... |
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actually... (5.00 / 1) (#39) |
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by djdaforce on Fri Mar 8th, 2002 at 01:33:39 PM PST |
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i'm pretty sure there's a few that do. but is anyone really interested in what they have to say?
besides, people like that usually have no opinion let alone the will express it. so what's your point? |
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My irony detector (none / 0) (#41) |
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by Anonymous Reader on Fri Mar 8th, 2002 at 09:01:47 PM PST |
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My irony detector is completely broken on this site. It's the first time I've ever been here, so I don't yet know the prevalent style of humor here. So are you joking when you say nobody cares about people who make less than 50k/year? I make somewhere around 30k on an average year as a set designer, and I get a lot of work. I'm also not an idiot. So it would be very nice if people could drop any ironic pretenses (if there are any) for a minute and just tell me if they're joking or not when they say that nobody who makes less than 50k is worth anything on this site.
Any major spelling or grammatical errors that are not clearly style choices are, unfortunately, typos or mistakes that I missed on my quick once-over. I hope you won't judge me too harshly based on that alone. |
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subject (none / 0) (#42) |
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by Anonymous Reader on Sat Mar 9th, 2002 at 12:57:35 AM PST |
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This is Adequacy.org, the writers don't believe what they write, nor do they expect anyone to. This site is actually for liberals, so they can make fun of conservatives.
It takes a momment to actually figure that out, though, since conservatives truely do believe this kind of stuff. |
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