Intel Corp and other companies in the computer industry that have resisted treating stock options as an expense are considering disclosing more details about how their options grants affect earnings.
Intel has made a proposal to Silicon Valley lobbying group TechNet that computer companies create a quarterly "equity impact sheet" that would reveal the number of options grants, the timetable for exercise and the potential effect on earnings, said Rick White, president and chief executive officer of the organization.
Computer, software and Internet-related companies are devising alternatives aimed at staving off treating options as a cost. They contend it would slash profits and hurt recruiting.
Their effort comes as companies are moving to account for options as an expense under pressure from investors, lawmakers and regulators who say excluding such grants as a cost allows companies to inflate profit.
"We recognize there has been some abuse of stock options at the senior level, and our main focus is to preserve stock options for rank-and-file employees," said White, whose organization has formed a working group on stock options. Palo Alto, California-based TechNet has about 250 company members, including Cisco Systems Inc, Oracle Corp and Microsoft Corp.
Other ideas being considered include requiring executives to hold options for five years before exercising them and restrictions on their ability to sell stock, White said in an interview. None of the proposals call for accounting for options as an expense.
"You don't want a system where the senior guys have an incentive to pump the stock, sell their own options and leave everyone else holding the bag," White said. "We will be proposing a plan that makes it clear you can't manipulate your company's stock, make a short-term profit, and hit the road."
Intel on Aug. 8 said it won't include options as a cost in income statements, a move that would have reduced profit at the world's biggest computer chipmaker by 80 percent last year.
Spokesman Bill Calder said Intel "is involved in the overall lobbying campaign, of which TechNet is a part." He said he wasn't aware of the company's participation in preparing alternative disclosure methods.
As Silicon Valley firms consider ways to increase disclosure, many US companies are accounting for options as an expense to restore investor confidence shattered by abuses at Enron Corp, WorldCom Inc and other companies. More than 70 companies in the past two months have made the change, including Coca-Cola Co, Computer Associates International Inc, Washington Post Co, Freddie Mac, Wachovia Corp and General Motors Corp.
Companies in the computer industry, which rely on stock options to pay employees, have fought attempts to force counting of stock options as an operating expense. They say such a move would distort earnings and lead to options being concentrated among senior executives.
Companies that resist expensing options may suffer declines in their stock prices and lose credibility with investors, said Nell Minow, editor of the Corporate Library, a Web site that reports on corporate governance, including executive compensation and board performance.
"In this era of uncertainty of financial reporting, money is going to flow to the companies that create the greatest credibility with the way they issue their numbers," she said.
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