Floyd Norris of the NY Times writes this column today in which he makes several interesting observations about stock options, albeit without any empirical data.
According to Mr. Norris, perhaps the wild swings in federal budget deficits might have been averted, companies would owe a lot less money, and less wealth would have been transferred from shareholders to corporate executives had politicians not forced the Financial Accounting Standards Board (FASB) a decade ago to back down from its proposal to force companies to record as a compensation expense the value of stock options given to employees.
Mr. Norris does make the valid point that most companies that issued options were concerned that the options would cause dilution of the company’s shares on the balance sheet. Accordingly, many companies borrowed money to repurchase shares, transferring wealth to corporate executives while the companies were taking on more debt.
As noted, Mr. Norris’ observations in this column are speculation at this point. However, he is certainly asking the right questions as companies and Congress grapple with the issue of how to handle financial reporting of stock options.
Meanwhile, David Foster has this defense for not expensing options.