NCPA - National Center for Policy Analysis

Regulating Stock Options

August 5, 2003

The Financial Accounting Standards Board (FASB) is considering a move to require companies to treat stock options as immediate expenses, which would discourage many firms from offering them to employees.

The move was prompted in part by Microsoft's recent decision to stop offering its employees stock options and pay them instead with restricted "actual stock." However, this one-size-fits-all decision by the FASB will discourage the very economic incentives that strengthen businesses, says James K. Glassman.

According to Glassman:

  • The real message of the Microsoft decision is that different companies at different stages of development and in different market conditions need the freedom to tailor different programs to compensate their workers.
  • What's good right now for Microsoft -- or for ExxonMobil, which made a similar change, with less fanfare, back in November -- is not necessarily good for Intel or a high-tech startup or an expanding restaurant chain.
  • Unfortunately, the FASB is moving swiftly to enact a one-size-fits-all system that would discourage the kind of incentives that helped Microsoft, now barely 25 years out of Bill Gates' garage, become the most valuable company in the world.

Though stock options aren't the best compensation solution for every company, the decision to issue them should be the right of businesses, not bureaucrats, says Glassman.

Source: James K. Glassman (American Enterprise Institute), "Stock Options Showdown Will Affect Future of U.S. Economy," USA Today, July 31, 2003.

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