NCPA - National Center for Policy Analysis

The Case Against Expensing Stock Options

April 29, 2003

Most high-tech companies think expensing stock options is a bad idea for America. According to Kenneth Schroeder, CEO of KLA-Tencor, the real issue isn't about options at all, it's about innovation and the engine of innovation: opportunity.

In the high-tech industry, stock options are vital to attract and retain a talented and motivated work force.

If options must be expensed, the likely outcome is that far fewer will be issued to the rank and file. Why?

  • Rather than clarifying the bottom line, expensing options could actually distort it.
  • With few exceptions, stock options are already accounted for in the earnings per share numbers.
  • By forcing them to also be expensed on the bottom line, companies that today are posting solid, bankable profits could suddenly look as though they are losing money.

And whether you are a shareholder, a board member or part of the executive staff, that just doesn't make sense, Schroeder says. Better solutions exist.

So if the goal is corporate abuse reduction, which most CEOs enthusiastically support, we need to give these alternatives a long, hard look and find solutions that actually fit the problem -- not create a problem where one doesn't exist.

Source: Kenneth Schroeder, "Options Aren't Just For Rich, But For New Innovator Class," Investor's Business Daily, April 29, 2003.


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