Magazine article Business Credit

Storm Brews over Stock-Based Compensation Rule: New FASB Rule Is Illconceived

Magazine article Business Credit

Storm Brews over Stock-Based Compensation Rule: New FASB Rule Is Illconceived

Article excerpt

At every opportunity, I oppose the destructive politicians who consolidate their entrenched powers by taxing all Americans for the benefit of their narrow constituencies. Nonetheless, these social engineers at least play a near-zero-sum game: farmers who agree not to build rice paddies in water-starved California receive, as subsidies, some of the money taken from taxpayers in the other 49 states.

The regulators in Washington, D.C., are a much more destructive breed because they create only economic losers--and no winners. These bureaucrats loot our economy with forms, rules, permits, procedures, boards, and commissions. FASB's recent assault on incentive stock options is an example of wealth destruction by a government-mandated bureaucracy.

We are all familiar with arrogant, out-of-touch regulatory bureaucracies. The no-growth planning commission in my home town of Woodside, Calif., recently demanded that a resident demolish his new home because it was declared 1,000 square feet "too big" due to an "excess" over the garage. If our town bureaucrats deserve a recall election message, what action should we reserve for the FASB bureaucrats who want to damage America's entrepreneurial, job-generating machine without any concomitant benefit? I vote for the win-win option: euthanasia--no FASB costs; no FASB damage.

FASB's current proposal is simple: stock options (even at market prices) have value; therefore, require the companies granting them to declare them as current losses. The FASB proposal, therefore, directly attacks entrepreneurial companies that grant options to most of their employees. Those entrepreneurial companies would become, at least on paper, significantly less profitable instantaneously. But, no one accrues any benefit from the crippling of our future Microsofts.


FASB's answer to both is arcane and absurd: accounting principles. America's entrepreneurial stalwarts--in this era of shrinking employment--are to be sacrificed on the altar of accounting principles by the high priests of the double entry ledger.

Every CEO says, "If only our employees would treat the company's money as their own." Stock options are a stroke of genius that achieve that end. My company offers stock options not only to every new employee, but to every current employee on a yearly basis. It is powerful motivation for our receptionist and our line workers to think like owners. …

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