Comments on: The costs of options expensing rules http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/ Academic commentary on law, business, economics and more Fri, 19 Mar 2010 20:08:11 -0700 http://wordpress.org/?v=2.8.5 hourly 1 By: Ideoblog http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/comment-page-1/#comment-6470 Ideoblog Sun, 18 Jun 2006 16:40:29 +0000 http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/#comment-6470 <strong>Gretchen Morgenson on stock options...</strong> Since stock options is the scandal du jour, it's not surprising it shows up this week in Gretchen Morgenson's scandal sheet. As usual, she's latched onto something that seems to be some sort of problem, blown it up into something... Gretchen Morgenson on stock options…

Since stock options is the scandal du jour, it’s not surprising it shows up this week in Gretchen Morgenson’s scandal sheet. As usual, she’s latched onto something that seems to be some sort of problem, blown it up into something…

]]> By: TRUTH ON THE MARKET » Option expensing has arrived http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/comment-page-1/#comment-1583 TRUTH ON THE MARKET » Option expensing has arrived Mon, 24 Apr 2006 19:32:37 +0000 http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/#comment-1583 [...] Under SEC rules, a public company is required to start expensing options commencing with its quarter one 10-Q for its fiscal year beginning after June 15, 2005. This means the time has arrived for public companies with calendar year-ends, and as a result, this month many companies have reported or will be reporting for the first time numbers that reflect option expensing. In a January post on the subject (here, and discussed by Geoff here), Rich Booth noted as follows: In the end, it might not matter whether a company treats the grant of options as an expense. Studies show that a company’s choice of accounting convention makes no difference as to stock price. As it is, analysts can translate earnings into cash flow, while CFOs can explain away the aberrant effects of accounting rules by calculating pro forma earnings. [...] [...] Under SEC rules, a public company is required to start expensing options commencing with its quarter one 10-Q for its fiscal year beginning after June 15, 2005. This means the time has arrived for public companies with calendar year-ends, and as a result, this month many companies have reported or will be reporting for the first time numbers that reflect option expensing. In a January post on the subject (here, and discussed by Geoff here), Rich Booth noted as follows: In the end, it might not matter whether a company treats the grant of options as an expense. Studies show that a company’s choice of accounting convention makes no difference as to stock price. As it is, analysts can translate earnings into cash flow, while CFOs can explain away the aberrant effects of accounting rules by calculating pro forma earnings. [...]

]]> By: Brainwidth » New SEC Executive Compensation Proposal http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/comment-page-1/#comment-341 Brainwidth » New SEC Executive Compensation Proposal Thu, 16 Feb 2006 19:47:08 +0000 http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/#comment-341 [...] The new proposal isn’t the only controversy surrounding executive compensation. Last year FASB adopted a rule, SFAS 123R, requiring that the grant of stock options be treated as an expense for accounting purposes. Richard Booth and Geoffrey Manne weigh in on that issue. [...] [...] The new proposal isn’t the only controversy surrounding executive compensation. Last year FASB adopted a rule, SFAS 123R, requiring that the grant of stock options be treated as an expense for accounting purposes. Richard Booth and Geoffrey Manne weigh in on that issue. [...]

]]> By: Bill Sjostrom http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/comment-page-1/#comment-214 Bill Sjostrom Wed, 01 Feb 2006 16:32:37 +0000 http://www.truthonthemarket.com/2006/01/31/the-costs-of-options-expensing-rules/#comment-214 Of course, not expensing options may result in their overuse and therefore too much risk taking. Putting that aside, do you know whether any empirical research was done in connection with adoption of the rule? I know a number of companies voluntarily expense options. Has expensing impacted their share prices or compensation schemes? If the answer is no, then scrap the rule because it triggers unnecessary changeover and other costs. If the answer is yes, then it raises your concerns and the question of whether accounting rules are the right avenue to address policy considerations concerning the mix of executive compensation. Of course, not expensing options may result in their overuse and therefore too much risk taking. Putting that aside, do you know whether any empirical research was done in connection with adoption of the rule? I know a number of companies voluntarily expense options. Has expensing impacted their share prices or compensation schemes? If the answer is no, then scrap the rule because it triggers unnecessary changeover and other costs. If the answer is yes, then it raises your concerns and the question of whether accounting rules are the right avenue to address policy considerations concerning the mix of executive compensation.

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