Economic & Business Focus: Expensing Stock Options

Many large U.S. companies are already expensing stock options, but most are waiting for the regulatory mandate.

The summer stampede to announce stock option expensing has slowed to a saunter. Among the S&P 500, only two organizations -- Boeing and Winn-Dixie Stores -- treated stock options as an expense before July. By October 15, 112 major U.S.-based companies had announced their intention to begin expensing options. However, after the rush of late summer, many companies flatly announced that they will not treat options as an expense until they are forced to do so. They may not have to wait long.

For the most part, the expensing of stock options has been adopted where it is least needed (see Companies Expensing Options, below). Experts agree that expensing will have the smallest effect on earnings in the energy, consumer staples and financial services industries. It will hit hardest in the IT, consumer discretionary, telecom and materials industries -- and most of these companies refuse to jump on the bandwagon. The high-tech industry is continuing its long fight to block any congressional or regulatory attempt to make expensing mandatory.

Chicago-based Bank One Corp. and the media giant Washington Post Co. were among the first businesses to announce that they would adopt expensing. Bank One treated options as an expense in its second-quarter earnings statement, released in mid-July. "We did it for the simple fact that we think it's accurate, fair and reasonable, and we just want to get this thing behind us and move on as a company, recognizing reality," says Jamie Dimon, chairman and CEO of Bank One. "The most important thing for shareholders is that they know the facts as best as we know them."