FASB's Options Cutback Will Hit Employees Hard

Rank-and-file employees will take the biggest hit as employers re-evaluate equity compensation plans due to the Financial Accounting Standards Board's (FASB) newly revised accounting standard for stock-based compensation, FAS123(R), according to Deloitte's 2005 Stock Compensation Survey.

Companies are reducing the overall number of stock options available and are also narrowing the pool of employees eligible to participate, in an effort to reduce the impact of expensing options as required by FAS123(R), said Ellie Kehmeier, a director with Deloitte Tax LLP.

More than 75 percent of respondents said they are reducing, or had already reduced, the number of options granted. Among those reducing option grants, 45 percent indicated reductions would occur below the executive/management level. However, 91 percent of respondents said they have made no change in option grant eligibility for senior executives from 2004 to 2005.

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