A delay in publication of the International Accounting Standards Board's final draft on share options may provide a temporary respite to the many companies and bodies that are against the controversial standard, but their relief may be short-lived.
Despite minor technical issues with the draft raised at the IASB’s last meeting in July, which will push the release of the standard into next year, there is little indication that those looking for exemptions for certain schemes will achieve their aims.
‘I don’t sense any desire from the board to reach a different conclusion on exemptions,’ says an IASB insider. ‘Nothing presented so far has forced a change of thinking on the matter.’
But this line hasn’t stopped influential bodies from pushing for change.
The main issue of concern so far has been the ‘broad-based’ employee share option schemes – those available to all employees as an additional incentive – rather than the larger options awarded to top executives as part of their total package. When the standard is published it will force companies to treat stock options as another form of payment to staff and expense them in the company accounts as a result.
This is bound to affect a company’s bottom line and many fear the introduction of the standard will lead to a reduction in the number of companies offering such broad-based schemes, while having little effect on executive packages.
It has been estimated by one opponent to the rule that its introduction could cost UK plc as much as £5bn in terms of profit reduction.
The fight against the share-based payment standard is one of the toughest the IASB has had to endure. Influential figures have come out against it, including the former chief executive of Hermes Pensions Management, Alastair Ross-Goobey. Two other bodies dedicated to the promotion of share option schemes, ProShare and the International Employee Stock Option Coalition, have also been campaigning for changes to the proposals.
All avenues seem to have been explored in the fight against the IASB’s plans. Late last year, the Law Society suggested the implementation of the accounting rules could be illegal, and predicted court challenges from companies not wishing to adopt them. ‘Companies can (comply with the new law), but they will be taking a risk,’ says a company law legal expert. ‘Most businesses don’t want to do it, so they can use the legal angle not to.’
The IASB has also received threats from some parties of pulling funding to the board. But this has been dismissed out of hand by chairman Sir David Tweedie, who said that if it happened, the board could find other ways to fund its actions, including levies on stock exchanges around the world.
Its next London meeting begins on 17 September, which is when the issue of exemptions should be aired. Unless something dramatic happens, the case for exemptions will probably be sent packing, but this has not deterred protesters. ‘We will try to speak to the IASB before its next meeting to explain the practical issues,’ says Diane Hay, chief executive of ProShare.
The EC’s recent intervention in the discussions on financial instruments standards IAS 32 and 39 has persuaded Hay that a similar situation could arise with share options. It is hoped, says Hay, that pressure can be exerted on the board to take account of practical issues and to move away from its theoretical stance. ‘The case from broad-based share options will not be won or lost at the meeting on 17 September,’ claims Hay. ‘These standards have to work in the real world. They may be correct in terms of theory, but being correct doesn’t make them right.’