Proposals issued by the International Accounting Standards Board (IASB) to charge the value of executive share options against profits have polarised opinion in the financial community. While analysts, big institutions and regulators have welcomed the planned changes, powerful opponents are lining up against them.
Lawyers are looking into whether the plans are legal, employee groups have warned that the measures would price employee share ownership schemes out of the market and a 50 million [pounds sterling] campaign to resist the plans has already started in the US.
The proposals would treat options as an issue of shares in exchange for services, valued in the year they were granted. A pricing model would be used to value the options, but discounts would be allowed for the risk that an individual might fail to meet performance criteria or quit.
Critics of the current system argue that the failure to cost options encourages their excessive use as a form of regular pay and encourages directors to boost their stock in the short term for personal gain--a contributory factor in some of the recent corporate scandals in the US. "There was an incentive to ramp up share prices," said Sir David Tweedie, chairman of the IASB. "Options are a corporate governance issue. These proposals are very timely, given the demand for greater transparency in financial reporting--particularly with regard to employee share...