Why Everyone, Save Silicon Valley, Now Favors Expensing Stock Options

Shelby, the gatekeeper for accounting legislation in the Senate, has said he won't hold committee hearings on options expensing -- effectively shutting down political opposition to the rule change.

"There are very influential people in the Senate who've turned around and said no [to the high-tech lobby]," said Turner. "While they can buy influence on the House side, they haven't been able to buy it on the Senate side. Even though it's an election year, that's almost astounding."

Right now, technology firms are mounting a last-ditch lobbying effort to water down or delay the FASB proposal. They complain that the accounting models used to estimate the cost of options are flawed, producing inaccurate estimates of the value of options. One piece of legislation that has garnered some support on Capitol Hill would require companies to expense only options awarded to a handful of the highest-paid officers, rather than expensing options for the entire workforce.

But those who support options expensing argue that even if the models aren't perfect, they're better than the status quo, which assumes options don't cost anything at all.

For the last several months, the FASB has been taking public testimony on its proposal to require options expensing starting Jan. 1, 2005. The board plans to issue its final decision in the fourth quarter of 2004. But even though earlier attempts to limit options have failed, this time around, options accounting reform is seen as inevitable.

Mike Crooch, a member of the FASB, said expensing of options has been vigorously debated in the U.S. and worldwide. "Each time those people have all come to the conclusion that fixed price options should be accounted for as compensation. So there's going to have to be some real dramatic and unknown fact come up before it will not happen," he said.

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