Greenspan attacks misuse of share options
Alan Greenspan, the Federal Reserve chairman, yesterday attacked companies' use of share options saying they had helped to exaggerate profits and contributed to an inflated stock market.
Greenspan said their use had had ‘perverse effects’ on financial accounting which had to be rectified, particularly in the wake of the Enron collapse.
There is no rule for accounting for stock options anywhere in the world. US standard setters hit a brick wall in the 1990s when they tried to force companies to account for granting share options in their financial reports.
Research by the Federal Reserve has calculated that the substitution of options for traditional cash salaries and bonuses added around 2.5% to company earnings at the US?s largest companies from 1995 to 2000.
Greenspan said: ‘The current accounting for options has created some perverse effects on the quality of corporate disclosures that, arguably, is further complicating the evaluation of earnings and hence diminishing the effectiveness of published income statements in supporting good corporate governance,’ according to reports in national and international press.