FASB Options Rule Draws Rants, Raves

Dec. 21, 2004

Tech firms would be particularly hard hit, lobbying groups claim.

Manufacturers and others have until June 30 to comment on the Financial Accounting Standards Board's (FASB) proposed rule changes for booking stock options and other share-based payments. It appears they won't need that long. Reaction to the proposal, released March 31, was nearly instantaneous. The National Association of Manufacturers and AeA, two Washington, D.C., trade associations, were among those attacking the proposal, under which all forms of share payments to employees would be treated like other forms of compensation by recognizing their cost in the company's income statement. The expense generally would be the fair value of the shares on the date they were granted, FASB says. Current accounting practices require only that the cost of fixed-plan employee stock options be disclosed in the footnotes to a company's financial statements. "Requiring companies to expense employee stock options will increase the cost of providing these important benefits and lead to the eventual elimination of broad-based stock-option plans, hurting rank-and-file workers the most," said Kimberly Pinter, director of corporate financial and tax policy for the NAM. "That would have the perverse effect of leaving stock options only in the hands of top executives." NAM also argues that there is no accurate method for valuing stock options. Technology firms particularly would be hard hit, points out the technology trade group AeA. "High-tech companies issue options and ESPPs [Employee Stock Purchase Plans] for virtually all employees -- a practice quite different from other industries," said AeA President and CEO William T. Archey, in a statement. Added Ken Wasch, president of the Software & Information Industry Association (SIIA): "Not only does the proposal fail to accomplish its objective of clarifying corporate accounting, but it poses an enormous threat to innovative companies and the U.S. economy at the worst possible time." The AeA and SIIA are supporting the passage of Congressional legislation that would require the expensing of options for top executives only. However, the FASB proposal was immediately praised by Sens. John McCain, R-Ariz., and Carl Levin, D-Mich., with Levin noting, "About 500 companies, including Coca-Cola, General Motors, General Electric, Dow Chemical, Amazon, Home Depot and Wal-Mart now expense stock options without suffering the dire consequences predicted by opponents." FASB says it held more than 35 public meetings and conducted field visits and consultations since adding the project to its agenda one year ago. The proposal provides more complete and higher quality information to investors, says the Norwalk, Conn.-based organization. FASB also states that the proposal "would achieve substantial convergence in this important area between U.S. and international accounting standards." The draft proposal is available at FASB's Web site, www.fasb.org.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.