Siebel's Case Shows a Hole in Black-Scholes

Tech Firms' Alternate Proposal

Siebel joined with 32 other companies -- mainly tech firms -- in a proposal that would offer information on how options dilute total outstanding shares, instead of counting them as an expense. Technology companies came forward with that plan a week after the International Accounting Standards Board outlined its proposal to require non-U.S. companies to expense options.

Meanwhile, Siebel has recently decided to issue fewer grants in the future, Goldman said. The company, known as one of Silicon Valley's most generous distributors of employee options, reduced its outstanding stock options by 21% between Dec. 31 and Sept. 30, in part because of layoffs, according to the company's filing last week with the Securities and Exchange Commission.

Goldman insisted the possibility of being required to expense options in the future had "zero" to do with its exchange offer and the decision to offer employees fewer options.

Rather, Siebel wanted to eliminate the distraction of out-of-the-money options to employees, Goldman said. "In today's environment, employees don't value options as much as they used to," he said, explaining why the company is limiting future grants. The company has not raised salaries to make up for fewer options because it believes the pay is still competitive, he said.

Click here to read a letter about this story.