For years, only two companies on the S&P 500 recorded their option grants as expenses: The Boeing Co., since 1998, and Winn-Dixie Stores Inc., since 1990. But in recent weeks, a stampede of companies has joined them.
"We saw this as one way to demonstrate that we are an open-book kind of company with good governance," says Michael Coke, CFO of real estate investment trust AMB Property Corp., which announced its plan to expense options on July 8. He says the decision will ultimately reduce earnings per share by 2 to 3 percent. Six days later, the Coca Cola Co. shook up the finance world by announcing plans to do the same.
Since then, such firms as Bank One, American International Group, and The Washington Post have announced hat they, too, will expense their options. Even Amazon.com Inc. broke rank with options-heavy tech firms and announced that it will begin expensing options in the near future. (Microsoft and Intel recently reiterated their opposition to expensing options.)
But are these voluntary conversions simply a public-relations move by a select few, or are they the beginning of an inevitable trend? With the recent announcement that corporate leaders General Electric and General Motors will begin expensing options, the peer pressure many soon become to great to resist.
"I see it heading in that direction," says Mark Slaven, CFO of Santa Clara Calif.-based 3Com Corp., who predicts that his company will likely have to expense options within the next two years.
Some companies, including 3Com, are concerned that the current company-by-company adoption could lead to inconsistency among valuations. The Gillette Co., for example, says it supports expensing, but is waiting for more guidance from standards-setters. "There must be one standardized, common approach," says spokesman Eric A. Kraus. --T.R.
The debate over expensing is heating up.
|1. Warren E. Buffett, CEO Berkshire Hathaway||For||His long campaign to expense options finally began paying off.|
|2. George W. Bush, President, U.S.A.||Against||Nothing about options in his "Corporate Responsibility" speech.|
|3. Bill Gates, Chairman, Microsoft||Against||In July the company said it had no plans to change accounting rules.|
|4. Alan Greenspan, Chairman, Federal Reserve||For||Says options are one of the "avenues to express greed."|
|5. Robert Herz, Chairman, FASB||For||"Most of the objections come from the corporate community."|
|6. Joseph Lieberman, U.S. Senator (DConn.)||Against||He fears expensing could deny options to the middle class.|
|7. Harvey Pitt, Chairman, SEC||Against||Says expensing options not an issue until other controls put in place.|
|8. Sanford I. Weill, CEO, Citigroup||For & Against||Expense them for the top five executives only.|
Source: Company Data, News Reports