CalPERS Weighs in on Option Expense Debate

June 18, 2002 ( - After years as one of the investing world's most active and vocal institutional player, the largest US public pension fund has stopped short of demanding that all publicly traded US companies treat stock options as a business expense.

Instead, the California Public Employees Retirement System (CalPERS), has opted for a position similar to one outlined earlier this month by the New York Stock Exchange, which calls for shareholder votes on all equity-based compensation plans, Dow Jones reported.

CalPERS’ 13-member board discussed the issue regarding expensing stock options on Monday.

No Silver Bullet

CalPERS spokeswoman Pat Macht said the board signaled it will not recommend treating options as an expense because there were “too many contrasting opinions about whether it was “the silver bullet,” according to a San Jose Mercury News report quoted by Dow Jones.

CalPERS officials also cited arguments from technology companies that there is no standard methodology for valuing options and asked the staff to develop alternative stock-option disclosure practices.

“I do wish somehow options could be shown as an expense because they are, but I don’t think we know enough to adopt that today,” said William Crist, CalPERS president.

CalPERS was lobbied by venture capitalists and tech companies to reject the staff proposal. John Doerr, a general partner of venture capital firm Kleiner Perkins Caufield & Byers, said before the vote that stock options would disappear as a recruiting tool for start-up firms if their potential value had to be deducted from earnings, reducing companies’ reported profit.

With its nearly $150 billion in assets, CalPERS has been a leader in shareholder causes, and its actions are closely watched and often mimicked by other large institutional investors.

Some corporate activists have complained that companies facing financial trouble routinely granted excessive stock options to their executives without properly reflecting the option grants on their balance sheets.

Read more at CalPERS Considers Treating Options as Expenses

Read more at CalPERS Debates Joining Accounting Reform Fray