In this testimony before the Senate, Mr. Biggs talks about stock options and expresses his opinion that expensing options in income statements would lead to higher-quality earnings reports.
Mr. Biggs believes that all types of employee stock options should be expensed in income statements. Shares of stock given to employees are required to be expensed; options given to nonemployees must be expensed. The current accounting rules, written in 1972, requiring an expense charge for performance options, but zero expense charge for fixed options given to employees, make no sense. In this statement, Mr. Biggs describes in detail the problems with current accounting requirements, the perverse incentives created by these accounting requirements, international efforts to change accounting rules, and various related issues including shareholder approval of option plans, academic research, and option repricing.
The testimony also makes references to a Corporate Governance Forum, which was sponsored by the TIAA-CREF Institute. A complete summary of this April 2001 forum – Has Pay for Performance Gone Awry? Views from a Corporate Governance Forum – is available on this web site.
