And what, exactly, is wrong with expensing the opportunity cost?
A company granting options is giving up the opportunity to sell those options into the market and pay cash. As someone who holds worthless options from a former employer, I know which I'd rather see.
If you want companies to buy treasury stock and expense that instead, that's fine, but it seems overkill -- no at-the-money call will ever be worth more than the underlying itself. If I were analyzing a company that did that, I'd back out the expense, fiddle a Black-Scholes approximation of call value, and expense that instead.
The issue I have with options grants is how to deal with vesting periods, since many such options are not outright grants (plenty are, mind you). I suspect you'd have to require an actuarial estimate, not too draconian when you require the same for pension liabilities.
mb |
