Gateway Shareholders Just Say No to Options Expensing

May 15, 2003 ( - Gateway Inc. shareholders went thumbs down on options expensing at the personal computer maker's annual meeting.

According to Reuters, the options-expensing proposal, made by the Central Pension Fund of the International Union of Operating Businesses and Participating Employees, was defeated by a 77% to 23% vote at the Sioux City, Iowa meeting. The Gateway board opposed the initiative.

The options-expensing issue has been a hot one for corporations for a long time – particularly since last month when US accounting standards body, the Financial Accounting Standards Board, decided to require all companies to treat employee stock options as expenses (See  FASB Says Yes to Option Expensing ). Later this year it will issue a draft of the new rules, including how to value options.

Options expensing proponents say that giving something of value – options – to employees in return for their services is a compensation expense and should be accounted for as such. However, opponents argue that there is no accurate and reliable way to value stock options (See  IBM Shareholders Reject Cash Balance, Expensing Proposals ). Treating them as an expense would distort the accuracy of companies’ financial results.

Two other Gateway stockholder proposals, also opposed by the board, were also defeated, the company said:

  • The American Federation of State, County and Municipal Employees of Washington proposed that the board mandate senior executives retain at least 75% of the shares they acquire through stock-based compensation programs while they are employed by Gateway. The proposal was defeated 88% to 12%.
  • The Massachusetts Carpenters Pension & Annuity Funds proposed that the board require stock option exercise prices be indexed to a group of competitors’ stock prices. The proposal was defeated 90% to 10%.