Geo debate
Download
1 / 16

GEO Debate - PowerPoint PPT Presentation


  • 77 Views
  • Uploaded on

GEO Debate. Share-Based Payment Speaking in favour of a charge for options Presenter: Alan M Judes Date: 5 December 2000. Agenda. what are options? how do they work? do they have value? how important a part of the remuneration package are they?. What are options?.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'GEO Debate' - sarai


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Geo debate
GEO Debate

Share-Based Payment

Speaking in favour of a charge for options

Presenter: Alan M Judes

Date: 5 December 2000


Agenda
Agenda

  • what are options?

  • how do they work?

  • do they have value?

  • how important a part of the remuneration package are they?


What are options
What are options?

  • the right, but not obligation

  • to acquire shares at a price fixed now

  • at up to 10 years in the future


Example of how share options work
Example of how share options work

Market Price @ Exercise

SharePrice

£6

£6

£4

Gain = £4

£2

Option price: £2

10 Years

(Exercise Limit)

Grant Date

Exercise Period

TIMING


Do they have value
Do they have value?

Source: FT 29 November 2000


Do they have value1
Do they have value?

  • you bet they do

  • they have enormous value

  • even “underwater” options have value

  • a company can sell them

  • Citibank will buy them and make a market for executives

  • millions of traded options are bought and sold every business day


Why do companies grant options to employees
Why do Companies grant options to employees?

  • to attract

  • to retain

  • to reward

  • to motivate

  • to pay

  • options are a payment of compensation in a slightly different currency to cash


How should companies account for the transfer of assets of value to employees
How should companies account for the transfer of assets of value to employees?

  • as remuneration?

  • as though they do not exist?


Why does the taxman want income tax on options
Why does the taxman want income tax on options? value to employees?

  • back to basics

  • Abbot v Philbin – grant of options is remuneration

  • remuneration should be taxed


The current accounting position
The current accounting position value to employees?

  • grant of option – nothing

  • exercise of option debit: cash

    credit: share capital

  • just balance sheet

  • no profit and loss charge


What a company could do
What a company could do value to employees?

  • sell option to market maker for cash

  • give cash to employee

  • employee uses cash to buy option from market maker

  • should cash payment to employee be ignored?


How important a part of the remuneration are they
How important a part of the remuneration are they? value to employees?

  • very important

  • some executives take no salary, they work for options

  • can a company realistically employ an MD at no cost to it?


Lets stop pretending options are free
Lets stop pretending options are free value to employees?

Advantages

  • employee appreciates their worth

  • they don’t complain as much when “underwater”

  • they understand the dynamics and gearing better


Example us company
Example US company value to employees?

  • old system – cash bonus $10,000

  • new system cash bonus 80% of old, 20% of bonus “buys” option at Black Scholes value

  • Black Scholes value 25% of market value so employee gets $8,000 in cash and $8,000 in options


Institutional shareholder services iss
Institutional Shareholder Services ISS value to employees?

  • Pay Model

  • evaluates share schemes using binomial option pricing

  • Pay Model is not a dilution based model, it measures monetary cost of plans


The choice facing companies
The choice facing companies value to employees?

  • bury heads in the sand and hope it will go away

  • engage in the debate and shape a better future

  • campaign for recognition at time of grant, not vesting