FASB’s all wrong on this one

“News.com – FASB’s all wrong on this one”:http://news.com.com/FASB%27s+all+wrong+on+this+one/2010-1014_3-5302648.html?part=rss&tag=5302648&subj=news.1014.5

It will mean the end of many broad-based options programs, curtailing the American innovation and creativity that sets us apart globally, and that fundamentally, America’s workers, businesses and overall economy will pay the cost.

Though I have issues with the pragmatist’s argument that expensing options is too expensive, I’m still not convinced it’s the right thing to do. My concern is two-fold,

# We’re producing yet another way for companies to creatively rearrange their finances, based on how they value their option grants. I’d much rather just have a company declare options they’ve issued and the terms, and let the “independent” analysts make up their mind the impact of the expenses on future earnings.
# Discouraging options seems to dis-incentivize employee ownership, itself a bad thing. If we want responsible companies, we need to align rewards and risks, and provide incentive for good behavior. Owners who have more of a stake than the short term bottom line seem to be the best way to do so.

Let’s look at the first concern. No matter what kind of rules or guidelines emerge, expensing anything with unpredictable costs (like how much options actually cost you) is open to interpretation. I would far prefer that that interpretation be made by people as unbiased as possible. Since the company is the least unbiased actor involved, I question the wisdom of having them provide the guidance. Why not just give us the raw figures, and buyer beware?

As far as decreased ownership, while common ownership of companies has produced massive private wealth gains, I think it has overall decreased the idea of positive corporate citizenship. Employees, owners, and other actors involved in the company often have concerns in addition to raw profitibility: working conditions, long-term health, reputation, sleeping well at night. Thereby, any mechanism that encourages increased ownership is something I would like to see encouraged.

So, while I dislike the argument that it’ll “be bad for the economy” (there are times that right is the way you should do things) I agree that expensing options is a difficult process and I’m not entirely comfortable with the current proposals for implementing it.