Options Move May Be at Expense of Accounting Purists
STOCK OPTIONS long have been the compensation expense that the tech world avoided treating as a compensation expense -- relegating the cost to footnotes, bypassing the income statement. Now that Microsoft Corp., with the granddaddy of such compensation programs, has decided to ditch stock options in favor of restricted stock -- which the accounting rules say must be expensed -- the accounting purists have won.</br></br>Not so fast.</br></br>Check out the earnings news releases of Amazon.com.</br></br>In a less widely heralded move, the Internet retailer late last year moved from stock options to restricted stock, which it said would better align employee and outside shareholder interests. Following the accounting rules, Amazon does indeed expense the cost of the restricted shares it issues to employees. But it continues to encourage Wall Street to ignore the large cost. How so? Along with net income, it uses a pro forma, or "as if," version of its earnings that backs out the cost.</br></br>While it isn't clear if Microsoft will take the same approach, accounting specialists predict Amazon's method will become commonplace as more companies move to expense stock-related compensation in their income statements. More such expensing is likely to occur because some companies will follow Microsoft's example and accounting rule-makers are expected eventually to require all companies to treat options- based compensation as an expense, possibly as early as next year.