Silicon Valley Loses the Keystone of a Golden Age

The story is the same at countless tech companies, where options are used much more heavily than in other industries. In 2003, companies in the tech-heavy Nasdaq 100 would have seen their net income plunge 44% after accounting for the cost of options, compared to a mere 8% drop for companies in the broader S&P 500, according to Bear Stearns.

But these arguments assume that tech companies will continue to grant stock options at the same heady pace that has prevailed for years. In fact, bellwethers such as Intel(INTC Quote) and Dell(DELL Quote) are quietly acknowledging the momentum of reform, cutting back the stock options granted to workers -- even as they continue to bestow rich financial rewards on their top executives.

Already, more than 570 companies, including big names such as Coca-Cola(KO Quote), General Electric(GE Quote) and Washington Post Co.(WPO Quote) have moved to begin expensing options. Even a few tech stalwarts have joined the fold.

In 2003, software giant Microsoft began replacing its options with restricted stock that vests over time. The software giant said it would begin expensing previously granted options. Amazon, the leading online retailer, began expensing options and shifted to restricted stock a couple of years ago.

Tech investors, who for years looked the other way while companies handed out more and more options, also have soured on the game. When tech shares were constantly moving higher, few complained about generous grants for employees.

But in the wake of the Nasdaq crash, many have grown critical of the massive cash-flow drain caused by options programs. The same companies that argue options don't cost anything may spend up to hundreds of millions of dollars a quarter quietly buying back their own shares in order to offset the dilution from option exercises.

Ken Klapatch, one of many individual investors who wrote to the FASB in support of the accounting change, explained in a letter: "I am not happy with company execs getting huge chunks of my investment money essentially under the table. If it hurts a company's bottom line, then they need to address the issue by not granting so many options!"