Options Debate Explodes Anew With FASB Plan

U.S. companies are currently allowed to choose whether or not to include options expenses in their income statements. Many firms have chosen to exclude such costs, arguing they are a noncash expense that muddles true results. Meanwhile, most technology industry executives have argued that stock options are all but essential to their survival, providing a crucial means to compensate and motivate workers inexpensively.

Intense lobbying by Silicon Valley helped defeat a requirement to expense options a decade ago, and the high-tech industry hopes history will repeat itself. There is growing support in Congress for a bill that would block FASB's latest proposal, The Washington Post reported Monday evening.

Still, most observers believe the momentum for options expensing is unstoppable. In anticipation of FASB's proposal, many companies have already changed their accounting and options practices.

Most famously, Microsoft (MSFT Quote) and Amazon.com (AMZN Quote) have voluntarily moved to expense options. Shareholders at Hewlett-Packard (HPQ Quote) and PeopleSoft (PSFT Quote) recently supported similar, albeit nonbinding, proposals.

Meanwhile, other tech companies that have not yet adopted options expensing are already taking steps to rein in their options programs. Some 73% of respondents to a 2003 survey of technology company executives by Deloitte & Touche said they are cutting back on their options grants, something Dell (DELL Quote), Yahoo! (YHOO Quote) and Intel, for instance, have already pledged to do.

Additionally, 83% of respondents to the survey from public companies said they were exploring alternatives to options, such as restricted stock grants, which are actual shares (vs. options to buy shares) that vest over time.