Saw this article posted by the Edge Weekly on Key West Global. ( KEYWEST )
Corporate: Key West takes Esos hit
By Siow Chen Ming
Here are some points from the article..
- Mesdaq-listed Key West Global Telecommunications Bhd (KWGT) is probably the first company on Bursa Malaysia to have reported a loss from expensing its employees' share options. The company said it had expensed a sum of RM396,000 on share options in the first financial quarter ended April 30, 2006, causing a pre-tax loss of RM516,000 during the period, on a turnover of RM45.32 million. During the previous corresponding quarter, pre-tax profit amounted to RM770,000 on a turnover of RM25.77 million.
And last but not least, the writer mentioned the following:
- With share options becoming an "expense", this would be a reminder to companies to plan their Esos properly so that their future earnings performance are not affected. This is particularly so for companies that have high staff counts but with small profits or thin profit margins.
Here's the issue for me.
ESOS is to reward the employees.
I have no problem with it.
Expensing ESOS in the books? Yes, it is a must. Someone has got to pay for it and it is an EXPENSE for the company. The shareholders has the right to know how much is the total expenses. Right?
So what's my problem?
Aha... if the company does not MAKE so much money... why should the ESOS be more than what the company make?
Does these employees deserve their ESOS?
Think about it.
That I think should be the most important thing to address!
Posts
8 comments:
Hi moolah, sorry have to write this here. After registering in sahamas i din not get an email for verification purpose. When i try to log in, it's asking for email verification. Is there any options for the email to be resent?
I have tested the system out again by creating a new member called 'test_user'...
and so far it works...
if you did not get the email for verification purpose... perhaps.. u have entered your email wrongly.. so please register again
rgds
Sorry lah, I registered but cannot log in. Moolah, I sent you an email @ my_bossie about this.
Well, about ESOS expense being more than profits, rules are rules - cannot avoid. But there are many ways to tweak the options expense.
For those not so profitable companies eg MESDAQ type start-ups, you'll definitely see this problem. No profits but at the same time share price very volatile. As you might know BS model gives higher valuation when volatility is higher.
Another issue is tax treatment of the ESOS expense. Wonder if it's deductible - unlikely as the ESOS is capital in nature.
Just my dua sen.
Hello,
Could you register under a different name?
We have decided that to maintain the integrity of the website to request members not to register names that mimicks other members.
I hope you understand this simple rule.
rgds
Hi Moola,
Interesting point made. However, for young and growing companies, which should be striving to save as much cash as possible, ESOS could be a good way to retain staff and/or keep them motivated. Of course, at this stage the earnings may not have materialised yet, but still the company has to keep the staff going somehow. Besides, ESOS proceeds are another source of funding for the co, no matter how small?
So I wouldn't say that giving out ESOS with no corresponding earnings to show is necessarily a bad thing per se. At least, they're expensing it, right? Having said that, I'm not sure what KEYWEST is trying to do strategy and performance-wise, they seem to be a bit lost...the above comments relate to growing companies in general only.
Hi Ichi,
Wassup? :-)
Besides, ESOS proceeds are another source of funding for the co, no matter how small? ==> I do not think it is a bad idea to give out ESOS but they simply has got to earn it. Right? Put it into simple perspective. Take out this ESOS and replace them with $$. Should a company reward their employees with so much $$ that causes the company to lose money?
And what about the minority shareholders?
Shouldn't the company justify themselves and its employees to their minority shareholders?
This is my simple issue.
If they want ESOS, fine. Expense it and most important, they have got to JUSTIFY it.
:D
ps... no give business it my new site kah?
:D
Hi bro,
That's my point... in many cases for young, growing companies, ESOS is a way to spur key employees and align their interests with the company's interests, in a situation where every $0.01 cash has to be conserved. Ideally, the earnings will (or should) come later as the business takes off. I'm not referring specifically to KEYWEST here, just young companies in general... often they cannot pay $$ to attract top talent, so ESOS is a useful tool to use while the earnings and cash flow are still not coming in yet. Otherwise who wants to work for them (other than halfwits), in which case the business will have no chance of taking off...Even Amazon gave out millions of options to employees before turning a profit. But of course, the earnings MUST come eventually ... but not too late, though...he he.
BYW, congrats on your new site... I heard it mentioned on my blog many times, so must be popular, no need my business then ; ) Actually I plan to visit it sometime, but I'm very slow with learning new things and this will be just one more new thing to learn...ie. how to navigate, how to find things, how to login, how to post comments, etc... I like to stick with things I'm familiar with, like this blog!
Ichi,
For the company and its employees, esos isn't too bad a scheme. However, from the minority shareholder point of view, I think that they are at a disadvantage.
jmv only hor
Post a Comment