The Microsoft stock option problem
What with all the giant corporations imploding, I give you a disturbing scenario for MSFT which I stumbled on a while back.
A few of those links will get you up to speed. More or less:
MSFT, along with other companies such as Cisco, has been using the tax-deduction from employee exercising of stock options to reduce their tax liability to zero. The Microsoft tax liability avoided in 2000 due to stock options was *three-quarters* of their posted profits.
Now, MSFT's glory days are probably over; they're looking at sub-10% gains for the indefinite future, unless something comes out of left field. Now, if the price goes up less in the future, then the total value of stock options exercised (the total number of shares may stay the same) will go down. If the total value goes down, then Microsoft may not be able to exercise enough options to avoid taxes.
What happens if, say, it goes down, or treads water? MSFT's earnings drop 75%, at a worst case.
It's even worse for Cisco. "Everyone does it," the obvious rejoinder, which they do to some extent, doesn't change anything. MSFT's earnings dropping through the floor will drop the stock through the floor regardless.