One of the main reason companies state for issuing stock options is to motivate employees. When employees have a stake in the company they are motivated to put in extra effort for the growth of the company. So the motivating reason does hold true. My thought on this is that company growth means increasing shareholder value, but it seems like that stock options mean increasing top executives bank accounts, because they are the ones who get the maximum benefits of the stock options.
With the new change of expensing stock options, the cost of these options would now hit the income statement, thereby reducing the margin. When the margin reduces, the shareholder’s returns will reduce, unless the options really motivate the company employees to grow the company. The options should be able to generate higher revenue, so as to cover the expense of the options, or else it will be diluting the margin.
With backdated options some (most) of which are already in the money when they are issued, the executives are guaranteed a return when the option is issued, so then how are they being motivated. It seems like stock options will now instead of being a motivating toll be a margin dilutive activity. The companies might have to revisit the whole concet of granting stock options.
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