Volume 13, Nos. 7 & 8


Margarine Currency: The S&P 500's Stock Compensation in 2003  Call it the cash substitute without the high price. Dip into the ownership stake of those who own the firm to pay those who run it, and you won't have to dip into the treasury to use cash. Spread it around like butter, year after year: shareholders rarely notice the creeping dilution. In case they ever notice, their attention is diverted easily enough with an eye-popping earnings report or a blowout acquisition. Firms are using less of the option brand of margarine currency these days, and frequently switching to restricted stock nonetheless. One might gripe that restricted stock issuance is still a form of shareholder pocket-picking, but at least it's more honest: the shareholders get to see the effects of restricted stock grants in the income statement. Despite the voluntary options expensing movement, most of the grifting that is option issuance is still suppressed from financial reporting - as if the options awarded had no value to the holder, no cost to the issuer. If they're so darned worthless, why are they supposed to be such great motivating tools? Make no mistake about it: options visibility in earnings is improving. Until the FASB's proposal to revamp equity-based compensation becomes an accounting law (by no means a done deal), investors will still have to muck through the footnotes if they want to see what it takes to run a firm when all costs are counted. This report is the result of that mucking-through process: it's a look at the earnings of the S&P 500 as if a single, consistent basis had been used for all firms' stock compensation accounting, and also presents trends in the ways stock options are being issued and valued, along with trends in restricted stock issuance.

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