To: paul_philp who wrote (62910 ) 2/5/2003 2:54:57 PM From: hueyone Read Replies (1) | Respond to Valuing Employee Stock Options WHAT THE EXPERTS ARE SAYING ABOUT BLACK-SCHOLES... There are some issues on which accounting and finance professors disagree, but the expensing of employee stock options is not one of them. Despite the pronouncements of a few renegades in our disciplines, we believe there is near unanimity of opinion among scholars in the fields of accounting and finance that the value of employee stock options should be expensed on a firm's income statement at the time they are granted. Third, some argue that employee stock options are worth less than publicly traded options because employees do not gain full ownership of the shares for several years (called the vesting period) and the company may place restrictions on employees' selling their options. But a firm's financial report reflects the perspective of the firm and its shareholders, not the entities with which it contracts. This principle is so fundamental that it is usually taught on the first day of an introductory accounting course. Therefore, the value of the stock option to the company is its cost -- the cash forgone by granting the options to an employee rather than selling them to external investors -- not its value to the person who receives it. online.wsj.com Mr. Merton won the Nobel Prize in 1997 for his work on option pricing.
