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Q & A
Sun's VP of Global Public Policy, Piper Cole, talks about the issues related to stock option expensing.
Wednesday, June 16, 2:00 PM PT
On June 24 2004, the Financial Accounting Standards Board (FASB) is
holding morning and afternoon Roundtable discussion sessions in Palo
Alto to consider the expensing of broad-based employee stock option
plans.
Between the sessions--at Noon--employees from companies with
broad-based employee stock option plans will hold an event in front of the Palo Alto City Hall. The goal of the event is to highlight how
employee stock options fuel innovation, small businesses and economic
growth and also to show how FASB's misguided proposal will hurt
competitiveness and economic growth.
Sun believes the use of broad-based stock options plans is
indispensable to attracting and retaining critical talent necessary to
motivate the innovation that will help spur our economic recovery and
create the technology that will help protect our national security to
prosper.
Q: Can you discuss what the issues are regarding FASB requiring
companies to expense stock options?
A: There are three main ways this is a big issue:
First, it's not an expense. Stock options don't cost the company
anything, the impact is on the shareholders, and that's already taken
into account in diluted earnings per share - so this would be
double-counting the impact of awarding options.
Second, the valuation methods are wildly inaccurate because you must
calculate today what the value of a company's stock will be in the
future and whether the employee will still be with the company when the
options can be exercised - usually 20% per year over a five year period - and there is very little opportunity to change these numbers if you
guess wrong. And because technology stock prices are more volatile than
others in other industries, the "value" that would have to be subtracted
is higher.
Finally, because of the high and inaccurate "value" a company would have
to subtract from earnings, many companies won't be able to afford to
continue to give options broadly to their rank-and-file employees.
Without that chance for reward, how many employees would take the risk
of working for an innovative, cutting-edge company. Without that,
America would lose its technological lead.
Q: Won't this policy change help eliminate corporate malfeasance?
A: Corporate malfeasance should be punished to the limit of the law but
stock options didn't cause the malfeasance and expensing stock options
won't stop it. Congress has passed other laws that deal more directly
with this issue and these should be enforced.
Q: Will Sun be able to continue its employee stock option program
after this policy goes into effect? Why not?
A: The effect of expensing
would hit high tech companies harder than any other industry
because of the volatility of technology stock prices. Companies cannot
afford to have their earnings reduced to this extent, so the only other
alternative is to cut back on awarding stock options. This would impact
our rank and file employees who currently receive 88% of the stock
option shares awarded.
Q: What do other companies have to say about this issue?
A: There are a lot of companies who feel as strongly about this as Sun does, among them Cisco, Intel, Qualcomm and many others.
Q: What are companies doing to make their opposition to this plan
heard?
A: We are supporting legislation that would ask that the consequences of expensing to the U.S. economy be studied before this is done precipitously. Our employees have written to their members of congress, and to FASB to voice their opinions.
And on June 24th, the Stock Option Coalition, in cooperation with Sun and other Silicon Valley companies, is organizing the second ever "Reality in the Valley" very near the location where FASB will be conducting hearings on this issue. Peter Giles, President and CEO, The Tech Museum of Innovation, Tom Campbell, Dean, Haas School of Business, UC Berkeley, former Member of Congress, and hundreds of fellow tech employees from other Silicon Valley companies will be showing up to turn the tide on the stock options debate. Be a part of history, sign up and join this event.
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