[TN Republican]

I think the point is that options are a benefit to the company in the form of savings on labor. This is more like a used line of credit, if the stock price rises and the options are exercised by the employees. Or look at it as an unsuccessful attempt at a short sale of stock, albeit with payroll and corporate tax benefits that could not be realized by the typical Wall Street trader out to make a quick buck by shorting stock.

Inversely, if the options turn out to be worthless, it's like a successful short sale, but the tax benefits would still have been realized during the year that the options were issued. Issue enough stock this way, and the likelihood is greater that the options will end up being worthless.

[Frumious Bandersnatch]

I think the point is that options are a benefit to the company in the form of savings on labor. This is more like a used line of credit, if the stock price rises and the options are exercised by the employees. Or look at it as an unsuccessful attempt at a short sale of stock, albeit with payroll and corporate tax benefits that could not be realized by the typical Wall Street trader out to make a quick buck by shorting stock.

Options are an unrealized liability, ergo they are like an unused line of credit.  It is true that options are to the benefit of the company and employees, but they are also very often of benefit to the shareholders as they are a means of attracting necessar talent that otherwise might be too expensive to afford.

Also, unlike a line of credit where the liability is the face value (plus interest) of the amount borrowed, options are at par when at face value and have no value.  Therefore, the liability of options are limited to anything above par value.  Historically, it is the people holding options for a lengthy amount of time that reap the most benefit from them.  Also the U.S. tax codes discourage options flipping.

Inversely, if the options turn out to be worthless, it's like a successful short sale, but the tax benefits would still have been realized during the year that the options were issued. Issue enough stock this way, and the likelihood is greater that the options will end up being worthless.

No, options are promissary notes which can be paid out in a number of ways.  The stock already exists.  Options do not create new stock.  The company, when redeeming options, does so from existing stock.