I learned a new acronym today.


It stands for Employee Stock Option Reference Securities.

Cisco announced yesterday that it plans to create a limited number of these securities and sell them to a limited number of institutional investors.  ESORS are designed to match as closely as possible the terms of an employee stock option that Cisco issues to its employees.

By creating a parallel security and selling it in a third party transaction, Cisco can determine exactly what its options are worth.  My guess is that Cisco is hoping that the ESORS won’t be worth nearly as much as the accountants are suggesting.  And so by doing this, they can reduce the compensation charge they have to take when they issue the options.

I think its an interesting development.

UPDATE:  Oliver Weiner said it better in his comments to this post, so I am posting them here:

i think that the importance of this development is completely being
understated. forget the ramifications for csco and tech co’s in
particular, but for all companies to be able to utilize a simliar
model. what csco did is brilliant, they said to investors, ok so you
want us to lower valuations b/c of options and make ourselves cheaper
through accounting, instead of guessing, why dont you (the investor
community) tell us what they are worth. its true capitalism through
markets. its a natural extension. however they will need to be
commoditized and tranched (kind of like traded mortgage related
securities). this will not be smooth transistion but is a significant
development to watch in the maturation of the US corporation which in
turn is de facto model global corporation.

I’d love Six Apart to make it simple for me to elevate a comment to a post. So many great comments get wasted behind the front page.