More than 80 per cent of financial analysts and portfolio managers believe that share options granted to employees are compensation and should be treated as an expense on companies' profit and loss statements, according to a survey by investment body the Association for Investment Management and Research (AIMR).
Currently, investors have to search for this information in the notes to the financial statements, if it is available at all, and factor it into their valuation of the company's equity or debt, said Rebecca McEnally, vice-president of AIMR's advocacy programme. "Analysts and portfolio managers clearly want to see employee share options treated as an expense in the income statement. Requiring share options to be recognised as an expense would provide greater transparency and it would give a more accurate picture of a company's financial health."
But Peter Holgate, senior technical partner at PricewaterhouseCoopers disagreed. While information on the fair value of options is useful and should be disclosed in company financial statements, it should not, at present, be treated as a charge against profits, he said. "This is a very sensitive issue and large amounts of money are involved. Users of accounts focus on cash-based earnings and it is unclear how they would react to charges in respect of share schemes." Disclosure followed by debate about reporting business performance and monitoring the uses of the disclosed figures is the way forward, he added.