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Stock Options

Expense Issue Draws Mixed Views From Companies

By Carrie Johnson
Washington Post Staff Writer
Monday, August 16, 2004; Page E09

The debate over whether companies should treat stock options as an expense draws mixed reactions from Washington area businesses, some of which have a lot to lose if the accounting rule changes.

A few prolific stock-option users, including mortgage giant Fannie Mae and credit card company Capital One Financial Corp., already expense options on their financial statements.


Steven C. Mayer, Human Genome Sciences chief financial officer, testified in July before a House Energy and Commerce subcommittee on proposals for expensing stock options. (Jay Mallin -- Bloomberg News)

_____Stock Quotes_____
FANNIE MAE (FNM)
Human Genome Sciences Inc (HGSI)
Lockheed Martin Corp (LMT)
Marriott International Cl A (MAR)
Nextel Communications Inc A (NXTL)
Capital One Financial Corp. (COF)
_____Compensation Report_____
The Region's Highest-Paid Executives (The Washington Post, Aug 16, 2004)
Pay for XM Executives Modest as Stock Recovered (The Washington Post, Aug 16, 2004)
Lucrative Cash Package Came as Fairchild Reported $53.2 Million Loss (The Washington Post, Aug 16, 2004)
Board Members, Executives and Family Members Can Still Benefit (The Washington Post, Aug 16, 2004)
Survey Estimates Values of Options, Excludes Exercises (The Washington Post, Aug 16, 2004)
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Top Compensation Packages
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Trends
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_____Live Discussion_____
Monday, 3 p.m. ET: Washington Post staff writer David Hilzenrath and editor Mike Flagg will be online to discuss the 2004 executive compensation survey.
_____Local Executive Pay_____
Chart of Highest Paid Executives
Chart of Cash Compensation
How Washington's Corporate Elite Stacks Up (The Washington Post, Jul 16, 2001)
Compensation Glossary
The Methodology
Stock Options No Longer Guaranteed Windfalls for CEOs (The Washington Post, Jul 16, 2001)
CEOs Do All Right, But for Real Money Look to the Stars (The Washington Post, Jul 16, 2001)
Tech Exec Compensation Climbs (Washington Techway, 7/16/01)
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Options, which are a popular recruitment tool, offer employees and top executives alike a chance to buy company stock at a set price and within a specified time. They are also supposed to be an incentive for executives to push up the stock price and benefit investors.

Some of the region's companies, facing cuts in profits or sharper losses if required to account for options as expenses, continue to resist a proposal by the Financial Accounting Standards Board, which sets accounting rules for companies.

The board is drafting a final rule that could take effect as soon as next year.

The backlash is particularly strong at information technology and biotechnology firms that grant options to attract talented workers.

Human Genome Sciences Inc. would have lost $109 million more than the $185.3 million it reported had it treated options as an expense on its books, according to Thomson Research. Steven C. Mayer, the Rockville biotechnology company's chief financial officer, said that if expensing is required, companies will award fewer options to average employees.

"The first person to lose his options is not going to be the CEO," Mayer said. "That first person is going to be an administrative assistant or the guy on the loading dock. I think it is a very misguided attempt to rein in executive compensation using a tool that will, in fact, harm rank-and-file employees."

Lonnie P. Taylor, vice president for federal and state relations at Reston mobile phone company Nextel Communications Inc., made a similar argument in a June 28 letter to the FASB. Nextel's 2003 profit would have been $325 million lower if it had been forced to treat options as an expense, according to Thomson Research.

Both companies award options to all employees.


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