> The specific lie discussed was the idea that granting options was not somehow an "expense" and could be excluded from the accounts.
Stock options for the company's own stock are kind of weird because the company can issue its own stock, which puts them in a much different position than someone selling uncovered calls.
An uncovered call is a potentially unbounded liability. If you issued someone options to buy 10,000 shares for $10 each and then the price went up to $1000, you could be on the hook to have to buy $10M in shares and then sell them for $100,000, i.e. you'd take a $9.9M future loss, and the risk of that is a significant liability.
Whereas if you have 10,000 shares and agree to sell them for $10 each and then the the price goes up to $1000 before they pay you, you don't actually owe anyone that extra money, you just failed to make the $9.9M gain you otherwise would have. It's the same as if you'd sold (or issued new) shares for $10 immediately. But we don't generally book "opportunity cost of selling shares for the current market price" as an expense, do we?
The IRS rules on AMT for that transaction might have you thinking it was generally booked. Though any sensible accounting seems like it wouldn’t book it.
We like to pretend we have rule of law, but every part of the government is inherently a political animal.
Old money deferring capital gains forever? No prob. Some nerds who built something but mostly don't have a sophisticated understanding of finance or an organized political machine? Haha screw those guys.
> Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were.
That's saying that it's stock options themselves which are the bad idea. The lie is in how they are expensed or not expensed. The point the accountant is making is that if stock options were a good idea, they could be expensed, thus not needing the lie.
But nowadays, stock options are expensed, right there in public, and they are still considered a good idea.
People who sell lottery tickets, on average, do better than those who buy them. The same applies to stock options. Which is why "bonus" options are fine, but "buying" them by taking ESOP over potential salary, can be a bad choice.
I think it depends on the ESOP, the companies i've worked at ESOP happened at 10-15% discount of the real price at the buy time and those stocks are instantly sellable. They can be taxed differently yeah but depending on how much you are buying and sell its capital gains tax which can be lower than income tax.
Edit: I am conflating RSUs and stock options never worked somewhere without RSUs so there might be a gap in my experience
Options are a bit riskier than RSUs. If you have RSUs issued at $100 and the stock goes down to $50, then your RSUs are worth half. If you have the option to buy stock at $100 and the stock goes down to $50, then that option is worthless.
I'm kind of getting at the fact that people tend to optimistically overestimate the likelihood of positive outcomes. This is true for lottery tickets, and stock options (every startup is definitely going to the moon).
From the company's perspective, options/equity are great for creating alignment. From an employee perspective, employees need to understand that they are making a bet and have limited control over the outcome of said bet.
I agree with that aspect, but I still think there's a difference. You can't effect the outcome of lotto ticket. To some extent, you can with stock. The incentive probably helps the company more than it helps the individual, but that's the nice part of the feedback again.
(Google tells me this is a relevant summary of US GAAP https://carta.com/uk/en/learn/startups/equity-management/asc... )