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Stock-option Change May Be Overrated

March 31, 2004
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FASB’s proposal that would require companies to expense options on their income statements would not have a huge effect on stock prices, according to Towers Perrin.

A Towers Perrin study released March 31 showed that a company's decision to expense stock options has no impact on stock price. That’s because investors take into account the effect of options regardless of whether a company expenses them.

FASB is accepting comments on the draft through the end of June. In the meantime, interested parties can discuss the proposal in the Benefits Forum.

Phil Peterson, senior vice president at Aon, says that “we’re not seeing anything that’s substantially unexpected” from the FASB proposal. Peterson says that companies will “re-explore” their compensation programs, but that it’s too early to tell whether large numbers of additional companies will abandon their option plans. Their reactions may be “all over the board,” he says.
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