.

Who Benefits from Employees Making

Early Exercises of

Employee Stock Options ?

The Answer is that the Company and

the Wealth Managers Benefit.

What Benefits Flow to the

Company/Employer from

Early Exercises by the Employees

The answer is that company gets a reduction of their contractual liability to the employee.

The company also gets early cash flows from the employee paying the exercise price and early cash flows from tax deductions of the "intrinsic value" as a compensation expense.

The company also gets a reduction of future expenses from earnings as the early exercises allow the companies to assume shorter "expected time to expiration" for lower future "fair values" on the grant day because the "expected time to expiration" will be less.

How do the Wealth Managers benefit from the early exercises?

Wealth Managers charge fees based on the Assets Under Management. So after the early exercises, the Wealth Managers advise "diversification" and Assets Under Management will come from the net proceeds after exercise, forfeit of time premium, and paying an early tax as those proceeds are diversified into mutual funds or managed assets.

So Wealth Managers promote the early exercise because it generates early AUM which they may never get if the client efficiently sells calls and buys puts. The client may defer the exercise until near expiration by proper risk reducing adjustments over time.The Wealth Manager will get no AUM if the stock is trading below the exercise price at expiration.

Are there any advantages to the employee with early exercises of ESOs, sell stock and diversify?

Rarely will there be any advantage to making early exercises, sell and diversify. This is so because the advantages of "diversification" are small but are overstated by those promoting the strategy. The penalties of the forfeiture of the "time value" and the payment of the early taxes are high except in rare circumstances. So the promoters of the strategy generally understate the penalties.

How do Companies and Wealth Managers discourage selling exchange traded calls, which is the only efficient way to reduce risk and delay taxes to the grantees of ESOs?

Answer...The Companies and Wealth Managers intimidate the employees to think that the only way to manage the ESOs is by making early exercises and "diversifying". They create organizations to discourage management of the ESOs in ways which benefits the employees and they write books trying to do the same. They try to get Congress to outlaw efficient management of the ESOs.

There are even some lawyers who sue the Wealth Managers to force them to promote early exercises and diversify.

The companies insert provisions into their Insider Trading Policies that are designed only to stop efficient selling of calls. These Insider Trading Policies violate their contract with their employees.

It is no wonder that there are very few employees who handle their ESOs grants properly.