16-7 Stock Options 4

16-7 Stock Options 4 - Accounting Cops delay Change FASB,...

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Accounting Cops delay Change – FASB, in Stock-Options Battle, says Companies will receive Six Additional Months to adapt Source: Wall Street Journal, 14 October 2004 BOWING TO pressure from securities regulators and corporate executives, the organization that sets the nation’s accounting standards announced a six-month delay in its long-awaited plan to require companies to treat employee stock-option compensation as an ex- pense that counts against earnings. The move involving companies’ financial statements alarmed some supporters of the proposed change. They said they fear that the delay will give high- technology companies – among the biggest issuers of stock options – additional time to build support for federal legislation blocking the plan for good. Under yesterday’s decision by the Financial Account- ing Standards Board, based in Norwalk, Conn., man- datory expensing of stock-option pay would begin during the third quarter of 2005 for companies with calendar fiscal years, rather than the first quarter as the board originally had proposed in March. Stock options, which are corporate perks that grant an employee the right to buy stock at a fixed price dur- ing a specified period, became a source of immense wealth during the 1990s stock-market boom, espe- cially for top executives. The current rules give com- panies the choice of leaving stock-option pay off their income statements, relegated to footnotes in their financial reports. That is in contrast to the treatment for cash pay and other benefits. That spe- cial treatment, some critics say, has encouraged out- size options packages to senior executives, creating an incentive for them to play accounting games to give their stock prices quick pops. The latest development in the accounting battle comes as many companies are favoring other forms of stock compensation, most notably so-called re- stricted stock, even as they continue to issue stock options. While stock options give the employee the right to buy a share at a set price, restricted shares are given to an employee but can’t be sold for a desig- nated period. Restricted shares have become popular with many employees because they, unlike stock op- tions, retain some value even if the stock price falls sharply. On Wall Street, as much as 90% of annual compensa- tion can come in the form of stock-heavy bonuses. This year, bonuses on the Street are expected to be up as much as 10% to 20% over last year, thanks to an improved profit picture. Securities firm Lehman Brothers Holdings Inc. widely is considered the biggest issuer of restricted stock, with every employee getting at least some. It pays as much 40% of compensation in stock to its top executives, now primarily restricted-stock units. To- day, about 30% of the firm is employee-owned, up from just 4% a decade ago. A survey released this week by Frederic W. Cooke &
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16-7 Stock Options 4 - Accounting Cops delay Change FASB,...

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