Dollars and Jens
Friday, November 07, 2003
Expensing Options
Glassman writes against expensing stock options, introducing the topic with
An accounting board is rushing to require companies to treat stock options as an immediate expense, thus reducing the profits they report to shareholders — even though no one has yet found a way to value options expenses accurately. [Emphasis added.]
1. The proposal doesn't alter the economics of a company; indeed, not even its taxes. The only thing being altered is what is reported to shareholders.
2. The options cannot be valued accurately, but neither can anything else, except within tolerances. Right now they're counted as zero; not only do we know that that's not correct, we know in which direction we need to go to get closer to the right number. We should get closer to the right number.
If the Federal Accounting Standards Board, or FASB, changes the rules, many of these firms say they will have to scrap their options programs, which have helped attract the best and the brightest talent and have created a revolution that has boosted the entire economy.
I could get tedious on this point, but let's make it clear why we have to scrap the options program: because the shareholders would be furious if they understood how much of the store we're giving away. We would much prefer to continue to give away shareholder money, paying more than the shareholders would approve for talent, and we don't want the FASB making us 'fess up.

The companies need to ask themselves a simple question: is it worth the options in question, in addition to salary, to attract the talent in question? If it is, go forward with the program, whether you get to lie about its cost or not. If it isn't, don't go forward with the program, whether you get to lie about it or not. Do what is best for the company, not what produces the best short-term reported earnings.

Powered by Blogger