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To: The Duke of URL© who wrote (173442)	3/11/2003 7:33:44 PM
From: hueyone	Respond to of 186894

That is why they have been given the same consistent accounting treatment for the last 75 years. Actually, the accounting treatment for non qualified stock options is inconsistent with every other kind of equity based compensation. For example, companies that give stock grants routinely expense the stock grants, but no one cries "double counting". And it is only a small leap of logic to realize that granting employees stock grants is not that much different from the company selling shares on the open market and then paying the employees with the cash proceeds, other than that the employee books the proceeds directly in the second place rather than having the company first sell the shares and then pay the employee. And no one cries "double counting" either when a company goes out in the open market, sells shares and pays the employees with cash proceeds. Like granting share grants, granting stock options impact shareholders in two ways---both an employee expense that should be on the income statement and as dilution. One of the reasons that stock options escaped accounting on the income statement from the beginning was the difficulty that people were having in valuing them--- coupled with the fact that they generally represented a rather insignificant part of income even if people could figure out how to expense them. Recently stock options have not been expensed for any other reason than the great power and money of business lobbies fighting against it. For more on the history of accounting for stock options, try this WSJ article: #reply-17249383 Excerpt: Accounting-rule writers grappled with the issue at least as far back as 1972. Not only weren't stock options widely used back then, but the challenge of calculating their cost was daunting. So officials decided that options needn't be treated as an expense. During the 1980s, however, stock options became increasingly popular, particularly in Silicon Valley, where high-tech start-ups often offered them not just to executives, but to employees of all ranks. In the early 1980s, the nation's major accounting firms told the Financial Accounting Standards Board that they thought stock options were clearly a form of compensation, and thus should be accounted for as an expense. By the early 1990s, there were sophisticated new methods available for projecting the long-term value of stock-option grants. Companies were beginning to use a mathematical model developed by economists Fischer Black and Myron Scholes to tell employees how much their stock options were worth. Mr. Scholes later won a Nobel Prize in economics for the model. The FASB reasoned that if companies could estimate the long-term value of the options to their employees, they could also give shareholders an accounting of the long-term costs of those options. And so, the FASB voted in April 1993 to require companies to treat options as an expense, based on the estimated future value of those options. The vote produced a political tsunami that started in Silicon Valley, gathered force in Washington, and slammed into Norwalk, Conn., where the accounting board is based. In 1994, thousands of high-tech workers gathered in Northern California for a raucous pro-options demonstration called the "Rally in the Valley," sporting T-shirts and placards with such slogans as "Stop FASB!" and "Federal Accounting Stops Business." The new accounting rule would "destroy the high-tech industry," warned the head of the American Electronics Association. The high-tech sector circulated studies predicting that corporate profits would fall by 50% and that capital would dry up as a result of the new rule. More than 100 high-tech executives flew to Washington to work Capitol Hill. The Clinton administration weighed in against the FASB. So did institutional-investor groups, who said the rule change would muddy financial statements. A nonbinding resolution opposing the FASB rule change passed the Senate by a vote of 88-9. Its sponsor, Sen. Joseph Lieberman, a Connecticut Democrat, later proposed legislation that would have, in effect, put the FASB out of business. The Business Roundtable, a group made up of major corporate leaders, threatened to refuse to adhere to FASB decisions. By the end of 1994, the FASB withdrew the rule, deciding instead that companies would have to disclose the value of their options only in a footnote in their annual reports. At the time, Silicon Valley was starting to power the strongest U.S. economy in a generation and a bull market in stocks, and nobody was in the mood to tinker with success. Regards, Huey .