There is a growing buzz over a position paper in the Summer issue of the California Management Review asking the SEC to reopen for debate the FASB’s new standard requiring the expensing of employee stock options. Thirty of the nation's leading experts in accounting, economics, business, and finance signed the paper to express their concern that financial statements are being impaired by mandating the expensing of options. The thirty signatories include three Nobel Prize winners in economics, two former CEOs of Big Four accounting firms, and two former Treasury Secretaries.
Calling a stock option a gain-sharing instrument in which shareholders agree to share their gains, if any, with employees, the paper reasons that, by its nature, such an instrument has no accounting cost until there is a gain to be shared. When the stock price goes up and there is a gain to share, the paper continues, it must be located on the books of the party that reaps the gain, which is the shareholder not the company. By this reasoning, it follows that the cost of the stock option is borne by the shareholders.
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