Through the long economic boom that began in the early 1980s, stock options became increasingly popular with employees and executives alike.

Providing company stock as a form of compensation soon became a form of off-the-books currency and made significant amounts of money for executives and generated significant tax benefits for companies. However no expense was recognized for financial accounting purposes. To put it mildly: accounting standards were lax, things got out of hand and, for many, corporate greed became the order of the day.

Scandals at prominent companies such as Enron and Worldcom have cost the economy billions upon billions of dollars and the effects will be felt for years to come. The good that will come of this is that the once dormant efforts by international and national and accounting standards boards to require valuation of stock options have been fused with new energy.

The Accounting department at The Fox School hosted its first annual conference in November 2003 with a program that provided close to 100 members of the region’s financial community with the latest information on the state of accounting for stock options, the proposed new requirements, and the effect of new accounting procedures on compensation packages.

“We saw a distinct need in the financial accounting community and marshaled our resources to pull a distinguished group of industry leaders together to address the subject and help put it into context for them,” says David Ryan, department chair. “Our goal is to continue the dialogue as standards become more defined.”

According to Steven Balsam, professor and conference organizer, the Financial Accounting Standards Board (FASB) attempted to mandate expense recognition for stock options ten years ago but was met with significant political opposition that eventually put the issue to rest. Now, he reports, FASB and the International Accounting Standards Board (IASB) are coming together and are working en tandem to create proposals moving toward standards requiring expensing of stock options and recognizing the tax benefits associated with them.

“Both bodies are working toward reconciling their differences, which will provide significant momentum now that the political climate is much in favor of regulating accounting practices associated with this form of compensation,” explains Balsam. “We expect that final standards will be issued soon for the IASB and the third quarter for the FASB.” Right now, intricate issues and problems involved in measuring the expense and the associated tax benefits are being resolved.

“We are currently planning a conference for early May that will explore the implementation issues caused by the proposal, and the affect of the proposal and related corporate governance issues on the design of the executive compensation package,” says Balsam.

Balsam predicts that expensing stock options will alter the executive compensation package as companies will grant smaller stock option awards, and a shift from fixed options to cash bonuses, performance-based options, and restricted stock grants.

For more information about the spring conference, contact David Ryan at ryan@temple.edu.