And If It Is, Then What? Will Broad-Based Options Be Cut?

One likely change in options practices that would result from expensing is that there would be more performance-based options. Performance options typically require that some economic condition, such as outperforming the market, be met before an options vests. These kinds of options currently must be expensed, whereas "fixed" options, ones whose vesting is determinate (such as in time-based vesting), do not have to be expensed. Performance options are particularly important for executives, who otherwise are receiving potentially very large amounts of compensation for living and breathing while the stock market goes up even as their own company does not perform exceptionally well.

Another change that opponents of options argue will happen is that broad-based option plans will be reduced or eliminated. Employees, this argument goes, will be the sacrificial lambs thrown to investors to reduce the options expense item. But even in companies that currently grant options broadly, options to non-management employees only account for about 30% of the option value, while options to top executives account for half. So cutting employee options would not have that dramatic an impact. And it would look pretty awful to both the press and the employees. Imagine the headlines: "GreedCo CEO cuts employee options to save his own." On the other hand, companies who have made only a modest commitment to employee ownership through options might well cut back, but the impact of that would be minor because these programs are small to start with. Other companies, facing the tight labor markets demographers expect to redevelop, wanting to maintain "ownership cultures," or just philosophically committed to the idea of ownership will continue to share options broadly.