Expensing of Stock OptionsThe Council favors full and frequent disclosure to investors of the dilutive effects of stock options on earnings per share. The Council opposes legislation that would force companies to expense the granting of stock options. Such legislation would severely damage the ability of technology entrepreneurs to build and retain their workforce through granting stock options to their employees and would likely end the use of stock options except for the most senior executives. The real cost of employee stock options lies in the potential dilution of each investor’s share of company ownership. Requiring that employee stock options be counted as a compensation expense would result in double counting in the earnings per share calculation, which would provide misleading information to investors. Even assuming that employee stock options are an expense, there are presently no pricing models that adequately value them. The only model for valuing stock options that does not mislead investors is the “intrinsic value” method set forth in APB Opinion No. 25, where the difference between the fair market value at the time of the grant and the grant price is expensed. Most important, the Council believes that the intrinsic value method of valuation is particularly appropriate for broad-based employee stock ownership plans. The Council urges FASB to redirect its efforts to reform Statement No.123 toward stimulating a discussion of the intrinsic value method as it relates to the promotion of broad-based plans. |