Options Fray Goes to Washington

That's why California's Rep. Anna Eshoo, a Democrat, and Rep. David Dreier, a Republican, have proposed the three-year moratorium in the House of Representatives. Similar legislation has been floated in the Senate by Nevada Republican John Ensign and supported by California Democrat Barbara Boxer.

Congressional arguments surrounding this topic are admirably loopy -- Boxer has repeatedly referred to blocking this accounting change as a "woman's issue." In a round-table discussion on Capitol Hill in early May, the Senator cited two remarkable examples to back her claim, as quoted in the San Jose Mercury News. Boxer told how Sun Microsystems(SUNW Quote) options helped one woman to buy a house and set up a home office so she could spend more time with her daughter. Even better was the example of another (male) Sun employee who cashed in his options so his wife could pay off her college loans, buy a car and set up a business.

Congressional proponents of requiring companies to expense options have also taken an unusual -- and quite clever -- approach. Arizona Republican Sen. John McCain has said that if industry claims that options really don't cost a company anything are correct, then companies shouldn't be allowed a tax break for issuing them. This "you can't have your cake and eat it too" philosophy has also been argued by Michigan Democrat Sen. Carl Levin.

Most in the accounting field agree that while expensing options may be an imperfect solution to a growing problem, it is the sole remedy for ailing investor confidence. "It's the only way to put any kind of discipline on how companies pay their executives," says benefits consultant David Veeneman. Rampant abuses in corporate compensation are commonly thought to have led to or exacerbated some high-profile debacles in recent years, such as Enron and WorldCom.

But if regulators and lawmakers really have investors' interest at heart, they'll hold off on any major changes until the economy recovers, some say.

"The economy operates on P/E [price-to-earnings] ratios," Scanella says. "And if companies have to expense options, it will have a dramatic effect on the 'E.' Earnings will plummet."