Maybe in today's ever rising stock market, most people have not heard it. What we hear instead is that options are the best way of aligning managements' interests with those of the shareholders. And yet, everybody assures everybody else that a world in which managements have awarded themselves over ten percent of the outstanding capital of America's publicly traded companies represents a desirable solution. Orwellian language has been supplemented by the Kafkaesque co-optation by business groups of professionals and ultimately the government in setting the rules under which business operates. Accounting and tax rules all work against it.
Options are a free ride.
Typically, executives have argued that options are hard to value and therefore their costs should be ignored. At other times managers have said that assigning a cost to options would injure small start up businesses. And if expenses shouldn't go into the calculation of earnings, where in the world should they go . It behooves managers to remember that Abe's right even if an auditor is willing to certify the tail is a leg. Because the CEO community was so successful in overpowering FASB, the supposedly independent accounting rule setting organization, the challenge of creating a CEO compensation system with real alignment to owners' interests has been exacerbated.