Stock Appreciation Right. Same facts except that the executives receive SARs to be settled in shares of stock. Same facts as the fixed options, but with a performance condition that the executives can exercise the options only if the company's revenues increase by a specified percentage during the next two years. Some opponents of expense recognition argue that options are capital transactions with stockholders that never cost the company cash and in fact bring in cash. Others say the values of options cannot be measured accurately enough for financial statement purposes.
Companies acquire all sorts of assets and services in exchange for equity instruments such as stock.
Those assets and services are just as valuable as similar items acquired for cash. If a company's attorneys are compensated in stock, legal expense is recognized. If a building is acquired in exchange for stock, depreciation expense is recognized over the asset's service period. Compensation expense results from using the employees' services, not from issuing the options. A close cousin of the capital-transaction rebuttal is the argument that compensation from options is paid out of stockholders' pockets via dilution of earnings per share.