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Portfolio > Economy & Markets > Fixed Income

AIG, MetLife To Expense Options

By Staff Writer

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NU Online News Service, Aug. 12, 1:16 p.m. – Two large insurers have announced plans to treat the fair value of the stock options they grant as expenses starting in January 2003.

The insurers, American International Group Inc., New York, and MetLife Inc., New York, are making the change to comply with Statement of Financial Accounting Standards No. 123.

SFAS 123, which deals with accounting for stock-based compensation, is a voluntary accounting standard developed by the U.S. Financial Accounting Standards Board., Norwalk, Conn.

AIG notes in a statement about its decision to comply with SFAS 123 that complying with the standard would have reduced the company’s reported second-quarter net income by only 5 cents per share.

“The costs of our stock option plans are relatively modest,” AIG Chairman M.R. “Hank” Greenberg says in the statement. “Historically, dilution as a result of stock option grants at AIG has been minimal, and we expect it will continue to be minimal in future years.

AIG and other companies already account for the effects of stock options by showing the effects on “dilution,” or the strength of existing shares of stock.

Requiring companies to account for options as expenses could discourage use of a valuable motivational tool by requiring companies to pay for options twice, by showing the options as an expense as well as a source of dilution, Greenberg says.

“Nevertheless, despite the substantive accounting issues as to whether companies end up paying twice, we believe that in today’s market climate, it is in the best interest of our shareholders to expense the options AIG grants going forward,” Greenberg says.

At MetLife, executives estimate complying with SFAS 123 would cut the company’s entire 2002 net income only 3 cents per share.

MetLife has controlled the cost of its own five-year stock-option plan by limiting the total number of shares of stock that can be covered by options to about 38 million for the duration of the plan, the company says.

The change in accounting for employee stock options “is the right thing to do,” MetLife Chairman Robert Benmosche says.

MetLife is joining with other leading companies to make the change to help restore investors’ confidence in Corporate America, Benmosche says.

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