It's hardly a boom, but this summer has seen a growing number of major companies announcing plans to begin expensing stock options. The moves are widely viewed as an effort to counteract investor anger and skepticism following a wave of corporate accounting and ethics scandals -- and a proactive step should the government require such expensing at some point.
So far, however, most Fortune 500 companies are staying with the time-honored practice of disclosing option compensation in footnotes rather than attempting to determine a fair value and factor option-based compensation into their bottom lines. FEI has continued to insist that the current practice is the most desirable, and that expensing options would be costly to companies and confusing to investors.
But the news that General Electric Co. was electing to expense options might prompt more companies to rethink their practices. GE -- arguably the nation's most admired corporation -- announced its decision on July 31, shortly after it had said it would divide giant subsidiary GE Capital Corp. into four parts. The company said it expected that expensing options would cost it about $30 million, or less than a penny a share, from its 2002 earnings, and about 3 cents a share over the next three to four years.
Several weeks earlier, Coca-Cola Co. has been one of the first to say it would expense options. It was followed by The Washington Post Co. and Bank One Corp. In early August, two corporate titans -- Procter & Gamble Co. and General Motors Corp. -- said they would join the bandwagon, though not in the current year
"The move to expense executive stock options voluntarily is, in essence, an attempt to regain investor trust by increasing a company's financial transparency while preparing for a possible mandate to expense options," wrote consultants at Watson Wyatt Worldwide in an analysis. While an options-expensing provision was dropped from the Sarbanes-Oxley Act, some proponents in Congress keep pushing for...