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Practice Management > Compensation and Fees

Battling Over Expensing of Employee Stock Options

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Stock Options News Roundup

SANTA CLARA, Calif. (–The Financial Accounting Standards Board, Norwalk, Conn., took a rhetorical drubbing at a panel discussion on the future of the tech industry for its moves toward the expensing of employee stock options.

High-tech startups very often employ this form of compensation. John Doerr and Roger McNamee, both prominent venture capitalists in Silicon Valley, agreed that mandating options expensing is unwise. Mr. McNamee said that the FASB is “a very, very bad organization.” While Mr. Doerr offered an impassioned three minutes on the subject, suggesting that reliable valuations are impossible and that even the proponents of expensing disagree about how it ought to be done.

In October, the FASB issued an exposure draft of an amendment to Statement of Financial Accounting Standard 123, “Accounting for Stock-Based Compensation–Transition and Disclosure,” Previous HedgeWorld Story. The draft would not mandate a fair-value system in the income statement, although it pursues the FASB’s seven-year-old project of nudging companies in that direction. The comment period ended Nov. 4.

Days later, the International Accounting Standards Board, London, propounded a new “share-based payment” rule of its own, a straightforward expensing mandate, to be implemented by 2004, and it asked for comments by Feb. 7, 2003.

In response to the IASB’s action, the FASB on Nov. 18 issued a new “invitation to comment,” asking constituents’ views on “the similarities of and differences between” the IASB proposal and its own. It is clearly seeking to build a consensus for a straightforward mandate of its own, on the grounds of international harmony. Messrs. Doerr and McNamee just as clearly will not sign on to such a consensus.

Five New Members, Three Re-elected, on CBOE Board

CHICAGO (–The Chicago Board Options Exchange concluded its annual election Nov. 21, by putting five new faces on its board of directors, and re-electing three veterans. All their terms will begin when the board conducts its first meeting in January 2003.

Five of the successful candidates were elected as public (non-industry) members: James R. Boris, of JB Capital Management LLC, Scott P. Marks Jr., former vice-chairman and board member of First Chicago NBD Corp.; Eugene S. Sunshine, senior vice president for business and finance, Northwestern University; Robert J. Birnbaum, former president and chief operating officer of the New York Stock Exchange; Silas Keehn, former president and chief executive of the Federal Reserve Bank of Chicago. Messrs. Boris, Marks, Sunshine are new to the board. Messrs. Birnbaum and Keehn are re-elected.

The other three candidates are industry (member) directors: Edward T. Tilly, of Botta Capital Management LLC; William R. Power; and Thomas H. Patrick Jr., managing director of Merrill Lynch Pierce Fenner & Smith Inc. Messrs Tilly and Power are new; Mr. Patrick is re-elected.

Messrs. Boris, Marks, Sunshine, Tilly, and Power have been elected to three-year terms; Mr. Birnbaum to a two-year term; Messrs Keehn and Patrick to one year each.

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