Most Investment Pros Say Option Grants S/B Expense

November 19, 2001( - Some 88% of investment professionals classify employee stock options grants as compensation - and believe that they should be recognized as an expense in a company's income statement, a new survey finds.

The remaining 12% are split evenly down the middle, with 6% disagreeing and 6% saying it depends ? in most cases, whether the option is in the money.

The Association for Investment Management and Research (AIMR) conducted the survey to gauge their members? responses to a proposal by the International Accounting Standards Board (IASB) that could require companies to report the value of stock option grants as an expense on the income statement – reducing reported earnings.

Room for Improvement

When asked whether the current accounting requirements for share-based payments need improving, for plans covering employees in particular, 74% answered in the affirmative.

Respondents also suggested that, in addition to expense recognition, disclosures should be enhanced to provide information about the potential dilution to current shareholders and the cash impact from related stock repurchase plans and exercised options.

Analysts Analyze

Disclosure of information about stock option plans impacts a significant number of analysts and portfolio managers – 85% said the firms they follow have such plans.

The survey also found that:

  • over 80% of respondents use information about stock options when analyzing a firm’s performance,
  • two-thirds use the information regardless of where that information is found,
  • while 15% use it only when stock options are recognized as expense in the income statement, and
  • only 19% do not use the information at all

Survey Information

The survey measured the views of 1,944 AIMR members, of which:

  • a little over a quarter were equity and fixed income analysts for investment management firms,
  • some 15% were analysts from brokerage houses, and
  • almost 40% manage portfolios for institutional or private clients

Three-quarters of respondents were from North America, 13% from Europe and 10% were from the Asia- Pacific region.

– Camilla Klein