Few Companies Expensing Options

December 6, 2002 (PLANSPONSOR.com) - Few companies have volunteered to expense their stock options, with the majority taking a "wait-and-see" approach to determine how future regulations will affect them, according to a Reuters report.

The number of companies announcing plans to expense their stock options is just over 100.   This represents a fraction of the total amount of publicly traded, stock option issuing companies in the US.

The reports says the lack of voluntary participation is due to three points:

  • Opposition by the technology industry, which uses options more than other industries to garner talented employees.   Technology companies would be hit harder in option expenses than would other non-tech companies.
  • Companies are waiting for an official regulation, instead of voluntarily expensing their options.
  • The value of expensing options is still unclear and companies are waiting for a more definitive standard.

David Johnson, an Ernst & Young partner specializing in executive compensation, said 2004 will likely be when any accounting rules become effective for option expensing.   The majority of companies are likely watching their competitors and taking a “wait-and-see” approach.

“If you adopt it, it is irrevocable,” Johnson said. “So if others on your peer group are not expensing and you are, you could be at a disadvantage.”