Volume 11, No. 14

 

Low Road, High Road: Recognizing Stock Compensation:  After Coca-Cola took the plunge in July and announced its intention to begin treating compensation paid in stock options as an expense, good corporate citizen wannabes raced to join the party. Maybe Coke was onto something good; maybe there was shareholder value to be created by presenting a more honest accounting of the income statement. More cynically, maybe companies followed suit because it looked like the right thing to do while inflicting very little pain on the adopting company. For a company moving from the non-recognition method of accounting for stock option compensation to the more rigorous requirements of Statement No. 123, the existing transition rules afforded a long-term phase-in that would have a minimal effect on earnings for years to come. The number of firms choosing to treat compensation paid in stock options has diminished lately, perhaps because of concerns that such treatment might not be something so desirable after all - or perhaps because the FASB announced that they were reconsidering the transition rules. The FASB's proposal on revamping the transition rules is so accommodating, however, that firms need not worry about compensation expense affecting earnings too much. The proposed standard lets every company have its cake and eat it too.

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