The gloves are off in the battle over share options. In the one corner is the Accounting Standards Board and its plans to require companies to account for golden handcuffs as a cost within three years. In the other are many of the biggest companies in the country, which are fiercely resisting the move. It's a fight that looks set to go right to the bell. Share-option schemes have long been a feature of employee remuneration, either as a management incentive or through SAYE schemes available to all employees. Share awards - either through annual bonuses or longer-term incentive schemes - have had a shorter shelf-life as an alternative but are growing in popularity. Now the ASB is planning to tear up the rule book that governs the way such schemes are accounted for. And, if the board has its way, within three years companies will be required to include the costs of issuing shares in their profit-and-loss accounts for the first time. 'Sometime after June' next year the ASB will release proposals to alter the way that businesses account for their employee share-option schemes. At the moment the overwhelming majority of companies record share schemes as an asset but the ASB wants them to reflect the costs involved. If the proposals are accepted the standard could be in place as early as 2002, but as the ASB points out the process will be 'a highly technical issue.' The ASB's initial decision to make changes follows an announcement by retail chemist Boots, almost 18 months ago, that it was voluntarily going to recognise the costs of buying shares for its employees. The chemist said it intended to take a &£163;63m charge against its 1998/99 profit-and-loss account to show the cost of buying shares to meet commitments to its employee savings scheme. It said rather than issue new shares to employees, the profit-and-loss account charge reflected Boots' decision to buy them on the open market and would show the difference between the purchase price of the shares and the option price offered to staff. Back in July, the company criticised the ASB for backing down on plans to introduce the reporting of the true cost of issuing shares to staff after the Urgent Issues Task Force withdrew proposed amendments to two abstracts following pressure from leading retailers including Marks & Spencers and Tesco. Boots finance director and joint managing director David Thompson, says the company believes the costs involved in share issuing are real and he believed they should be recognised by all companies. 'We were the first and I believe still are the only company that is accounting the effect of offering shares and their real cost. There are pros and cons for accounting this way,' he says. On the one hand this approach offers increased transparency in the company figures and removes any suggestion that shareholders are being kept in the dark on financial issues. There is also the argument that the profit-and-loss account would be more realistic under the proposed standard. The downside to the change, however, is the fact that investors would have to be continually informed why paper profit figures are lower than they were in the past. Boots' experience bears testament to this. But Thompson adds: 'We believe our figures are now truer for our shareholders and we are now waiting for other companies to apply the principle to their accounts so that we are all playing on a level playing field again.' The ASB's move could put pay to the so called fat cats who are widely criticised for receiving substantial sums of money as incentives. By making companies report the cost of issuing shares, shareholders will become more aware of lucrative incentives dreamt up by company board members. These may become a thing of the past, as they will be moved into the public domain. And as a result, shareholders will be able to further scrutinise where their money is going. The ASB acknowledges that its approach may make businesses reconsider the way they offer share options. ASB assistant technical director Andrew Lennard admits the share issue rules are in need of change there are several technical requirements which need addressing. Already the Urgent Issues Task Force abstract has tackled the area with two separate papers. UITF abstract 10 relates to where the ASB has considered the practice for reporting and granting and exercise of share options in the light of the statutory and other requirements for the disclosure of directors' emoluments and options. Abstract 17 relates to share-option schemes which have been around for some time and which are a feature of employees' remuneration, either as a management incentive or through SAYE schemes that are available to all employees. 'Ultimately we are trying to clarify the requirements of share issuing,' says Lennard. 'If a company pays for something in shares they should have to call it a cost and make an entry of account. At the moment the requirements are unclear.' He denies that costs will increase, but recognises that costs would appear to have increased on paper due to the different application in the profit-and-loss account. Ultimately shareholders and anyone with an interest in the progress of a company will benefit from the move, according to Lennard, while company accounts would become more transparent. Marks & Spencer shares the concerns of many retailers that any changes to the standard will result in its popular SAYE profit-share scheme - which has been taken up by more than half of its eligible staff - becoming harder for its staff to understand and result in a lower take up among workers. 'We believe our scheme is uncomplicated and clear which is why our staff want to be part of it,' a spokeswoman, said. 'We are concerned this could change.' At least for now the move is only likely to impact on large businesses. 'The proposals will not affect smaller companies, as by and large they do not distribute shares to their staff,' says Tony Miller, chairman of financial affairs at the Federation of Small Businesses. 'If they really wanted to keep their staff they would more likely offer a directorship.' However, the two often go in tandem and that will ensure the issue of share options does become a problem for these smaller businesses if they are to fulfill their ambitions and grow to become listed companies. The growth of the Internet is such that established senior executives are being persuaded to leave large organisations for much, much smaller ones. Part of the incentive is a new challenge - part of it is financial temptation, temptation that can only be afforded by start-up companies through the issue of share options. Only last month Andersen Consulting chief executive George Shaheen left the security of a firm with a multibillion dollar turnover for the online grocery company Webvan. All that was on offer to tempt him was the challenge and share options said to be worth as much as &£163;100m. There are, however, plenty of rounds still to be fought before the ASB proposal becomes reality - if indeed it does so at all. In 1996 the UITF sparked controversy when it proposed a similar accounting treatment but backed down after protests from Tesco and Marks & Spencer. It remains to be seen if the same thing will happen again.
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