Save as you earn

maybag

Many firms offer their employees the opportunity (option) to purchase shares in the company at a discount to the initial market price (typically 10-20%) at a future given date (normally 3 or 5 years from commencement) in Save as You Earn Schemes (SAYE). With the current downturn in share prices many schemes option prices are now more expensive than the current market price. Indeed in some instances it is almost possible to purchase the number of shares allocated in the option with the amount of monthly subscriptions saved to date. If an individual chooses this option, they could then invest the remainder of the monthly subscriptions in another form of investment. This may be of interest to individuals who were intending the purchase of the shares to form a portfolio for the medium to long term. What effect would it have on the companies if those individuals finding themselves in this situation chose to pursue this course of action. The number of options to buy shares in the company would be reduced considerably. Would this have an effect on the balance sheet?

jon3001

The options for the schemes are probably exercised by simply issuing more shares, in effect diluting the value of existing shareholders' shares. If you look in the company accounts it will probably mention the dilution effect of outstanding options.

maybag

So if the option were cancelled and the cash used to purchase existing shares it would be good for the company, in that it would not dilute the existing shareholder value, and good for the individual in that they would have bought the same number of shares for less !