Subtract This (Editorial)

There’s been a battle — mostly words — going on for a decade over stock option expensing.

Now that the Financial Accounting Standards Board has issued a formal proposal saying that all forms of stock-based compensation, including options, ought to be included as an expense on company income statements, the topic is once again big news in the corporate world.

Stock options — the right to buy or sell stock for a set price at a future date — have made many executives millions of dollars. But they have also led to the suspicion that the lure of option profits have tempted executives to artificially pump up stock prices.

Last month, Congress held hearings on the subject, much as it did 10 years ago when it bullied the FASB into backing down. With that, stock options took off. Had Congress not interfered with the practice of accounting, some of the recent corporate scandals might not have happened. Now, once again, high-priced lobbying may halt the FASB’s plan to do the right thing in its tracks.

With the recent scandals still fresh in the minds (and portfolios) of many, the proposed changes stand a better chance this time around. The FASB will accept comments until June 30 on the proposal to expense options and other equity-based compensation at fair value on the date the options were granted. A final decision is likely in the second half of the year.

Pressure is growing to expense stock options, but there’s still a lot of resistance among technology companies, where options play a big part in executive compensation packages.

The new FASB ruling wouldn’t do away with stock options or limit them in any way. Companies won’t go under because they have to expense stock options. Many companies have already switched and no harm has come to them. The change would only affect how they are accounted for and, of course, the reported earnings.

The best economic and accounting minds say it’s the right thing to do, and the reason is simple: Stock options are compensation. Compensation is an expense. Income statements should reflect that.

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Scores of you have e-mailed about nominations for the Northwest Arkansas Business Journal’s annual 40-under-40 issue. May 28 is the absolute deadline, but it’s upon us and the entries are piling up.

The series features business leaders and up-and-coming executives under the age of 40 who exemplify the best the area has to offer. Nomination forms are available online at www.arkansasbusiness.com.