Expensing options could lead to job loss-Cisco CEO
Tuesday April 29, 4:00 pm ET
By Ben Klayman
CHICAGO, April 29 (Reuters) - U.S. technology companies might shift jobs overseas if they are forced to account for stock options as a business expense, the chief executive of Cisco Systems Inc. (NasdaqNM:CSCO - News) warned on Tuesday.
"Jobs would go in the first decade, followed by the companies," John Chambers, Cisco's chief executive, told industry executives at a networking conference in Las Vegas.
Stock options, or the right to buy or sell stock at a set price at a future date, are a hot issue in the aftermath of a wave of corporate scandals that has rocked Wall Street. Some critics blame the scandals, at least in part, on an explosion in stock option issuance in the 1990s.
Critics say stock options can inflate earnings because they are excluded from compensation costs and companies do not book them as an expense. Currently, companies must disclose the cost of stock options only in a footnote to their financial statements.
The top U.S. accounting standards setter, the Financial Accounting Standards Board (News - Websites), is edging toward a controversial ruling that stock options be treated as a business expense.
Chambers called the potential law requiring the expensing of stock options "the engineering and high-tech job export act of 2003." His comments followed similar criticism by the CEO of Intel Corp. (NasdaqNM:INTC - News), the world's largest chipmaker.
Intel's Craig Barrett last week suggested CEOs may refuse to certify financial results if stock option expensing was forced upon them. Barrett's comments marked the first time a major U.S. company had argued that civil disobedience could be a suitable response to such a rule.
On Tuesday, Chambers repeated his view that the current method for valuing them is not accurate. He said companies should disclose the dilution caused by options as well as have shareholders vote on all stock option plans.
Earlier this month, Cisco, the No. 1 maker of gear that directs Internet traffic, said it would grant stock options for about 75 million shares of its common stock to its employees.
During the booming market of the late 1990s, they were the favorite compensation for technology companies. With ever-rising stock prices, it was an easy way to attract or retain workers without actually having to pay them more.
Cisco has said 80 percent of its stock options are granted to employees below the level of vice president.
If options had been expensed in the quarter ended in January, Cisco's net profit would have been lower by almost a third, at $678 million, as opposed to a record net profit of $991 million, J.P. Morgan said in February.
Companies, particularly in the technology sector, have bitterly fought those efforts. However, a few have broken ranks, including Internet retailer Amazon.com Inc. (NasdaqNM:AMZN - News) and software maker Computer Associates International Inc. (NYSE:CA - News)
Cisco's Chambers also said on Tuesday that the timing of an economic recovery remains uncertain. "Nobody knows when it's going to turn, but once it does it will be rapid, particularly in the technology sector," he said.
Chambers declined to comment on Cisco's April quarter. The company previously said it expects sales to be flat to down 3 percent from the previous quarter. |
