The reason that the new rules are being put into place is that all option grants, including for employees, have a cost to the company and all costs to the company need to be included in their accounts, if these are to provide a full and fair view of the company's situation. What is the confusion?
The fact that less option grants are effected implies that they should not have been given in the first place. If a certain level of compensation is required to attract and retain staff it needs to be paid, whether it is paid in cash or in options, the value of this package should be the same. Any option grant should be valued at the date of grant or, as appropriate, vesting, for both the issuer (the company) and the receiver (the employee). If paid only in cash and employees want to take an upside bet on the company, they can use part of the cash to purchase options in the market. In this case, they would be in the same situation as if they had received cash and options. Indeed, if the company has a vesting policy, the employee would be better of by receiving the cash and buying the option, as they would control the option as soon as purchased, without delay.
Companies have had a free ride by not having to disclose their true costs. The game is up and should have been up a long time ago.
Oh, and please don't give us that stuff about options not being easy to value. Those that want to avoid disclosure are saying that they are valued at zero. That is a nonsense, especially as there is a multi-billion dollar industry working every day, fixing a price on options. Clearly the market price is closer to the right price than the arbitrary zero, which only serves to transfer value from shareholders (who pay the cost) to employees receiving options (who receive the value) without accounting for it. That sounds like deception and should be stamped out for the farce that it is!
OAM
See article:
International financial reporting standards have triggered a sharp drop in the popularity of share option schemes, realising the fears of critics who said the rules would kill off a vital recruitment tool.
Under IFRS, companies are required to deduct the cost of issuing options from earnings for the first time. This has led to sudden reductions in reported profit at some companies.
See full Article (paid subscription requied).
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