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Stock options expensing to be delayed

A House vote in the US on July 20 has quashed the proposed expensing of stock options by the Financial Accounting Standards Board (FASB). A number of industry bodies in the US ? notably the IT industry ? have been lobbying for the dismantling of FASB?s expensing proposals; they have clearly succeeded. The legislation, HR 3574, would require that only those options granted to the top five officers of a corporation be expensed and options granted to other employees would require footnote notation only. Further, the expensing model required under the legislation would use zero as the volatility factor in the equation.


Stock options have been held partly responsible for the excessive bonuses paid in the late 1990s to top executives; FASB hoped to curb such excess by forcing corporates to expense stock options on the balance sheet and so influence the valuation of the company.

 

John Palafoutos, a senior vice-president of the American Electronics Association, the largest high-tech trade association in the US, explains: ?Opposition to the FASB?s proposals is a priority for the high-tech industry because it could force many companies to discontinue option programmes and Employee Stock Purchase Plans for their rank and file employees.?


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