Options Debate Explodes Anew With FASB Plan

"We're big fans of restricted stock," said Ahlsten. "When we talk to executives, we want to see them hold at least one year of salary in restricted stock and only be able to sell a third in one year. We just think there has to be more alignment between shareholder returns and compensation."

While some have argued that options expensing will have little effect on tech industry shares, Broad disagrees.

After logistics company C.H. Robinson Worldwide (CHRW) began using restricted stock instead of options, analysts began writing about how the company's operating costs were going up and its margins declining, Broad recalled. The value of the company's compensation expenses remained the same or even declined; the only difference was how it was reporting those expenses.

Technology companies may face similar share pressure once they are forced to expense options. "The fact that [options expense] will be on the [income statement] will make it that much more transparent," Broad said. "Overall, you'll see pressure on multiples."

Of course, technology companies could attempt to go the route they've gone with other noncash charges, arguing that analysts and investors should ignore them. Although Microsoft expenses stock options and includes restricted stock charges in its income statement, sell-side analysts exclude those costs from their estimates, Broad noted.

There's also the prospect that companies will try to "game" the system. Although FASB plans to force companies to expense options, it does not plan to dictate the method by which companies calculate their expenses. The two leading formulas -- the Black Scholes method and the binomial method -- can lead to two different calculations of expense, even when using similar variables, noted one accounting expert, who asked not to be named.

Companies can also lower their options expense by making different assumptions about how long employees will hold them or how much their stock price will change over time, or by reducing the shelf life of options and how many they grant.

"I certainly think that companies will review the inputs under the new standard and the flexibility the new standard allows to reduce" reported options costs, the accounting expert said.

Indeed, perhaps the only certainty in the wake of FASB's ruling is that calculators all over America will be getting a workout in the coming weeks and months.

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