Collapsing overseas stock markets have put the same whammy on foreign stock option plans that the Wall Street bear market has on Silicon Valley.
It isn't just the U.S. that is enmeshed in the employee stock option quandary. A hoard of Asian and European electronic firms who rushed to emulate High Tech America in adopting the employee stock incentives are now caught in the same bind.
Collapsing overseas stock markets have put the same whammy on foreign stock option plans that the Wall Street bear market has on Silicon Valley. Option prices that once looked like an easy killing are now far in excess of current company stock prices. Far from being an incentive or lucrative pay supplement, most stock options all over the world now have little value.
The Korean Stock Exchange this month said the majority of the country's employee stock option plans had purchase prices far in excess of what the stock is selling for now. Until the latest bloom-off-the-rose, Korean industry had enthusiastically embraced stock option plans -- going from a mere 13 companies in 1998 to 1,266 today.
Despite the below-option-price blow, two major Taiwanese foundries, Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp., this summer both adopted employee stock plans for the first time. One factor may have been Semiconductor Manufacturing International Corp. (SMIC), upstart Shanghai, China fab with some ties to Taiwan that used employee stock options to lure veteran workers from the island foundries.
Companies from abroad also face the same dilemma as their U.S. counterparts on whether to expense options, taking a potentially big hit in corporate profits.
Merrill Lynch this spring looked at the possible impact that costing out stock options could have on major semiconductor firms. The study concluded that had the companies expensed their stock options their cumulative net income would have been declined 43% below reported earnings in 1999, 31% lower in 2000 and 69% lower in 2001.
The investment firm didn't specify the formula used in accounting the stock option expenses. And that is increasingly a major snag in the pressure on firms to expense their option plans.
The Financial Accounting Standards Board which sets U.S. guidelines is once again tackling the thorny question on how stock options should be properly expensed on company books. The board in 1993 made a major push to set stock option accounting standards, but was beaten up politically and backed down.
The FASB doesn't need to stoke up the fires this time to promote stock option expensing. The public uproar over accounting scandals and megamillion buck executive stock option windfalls has brought the issue to center stage. The FASB now says guidelines are needed so the growing ranks of companies expensing stock options will have a common standard to use.
The current hodge-podge of accounting methods could cause even more confusion, defeating the goal of better accountability on stock options.
Showing the global nature of the problem, the International Accounting Standards Board is also drafting guidelines on treating employee stock options as an expense. Most companies within the European Union and many in other parts of the world adhere to the IASB edict.
In the meantime in most of the world stock options are much less of an incentive now than in the high tech boom years. In the midst of the industry global downturn with accompanying layoffs and pay squeeze, just having a job may be incentive enough.