S&P excludes stock options from estimates
Credit rating group Standards & Poors is changing its corporate assessment procedures to take into account the cost of stock option awards.
The move comes in response to the Enron collapse which changed the way stock options are accounted for on the balance sheet.
The energy giant’s collapse was blamed partly on high payouts made to its executive directors, viewed as an incentive to artificially inflate earings.
S&P said it would deduct stock option expenses from its calculations of operating earnings and exclude pension gains, and gains and losses from asset sales. This is likely to affect some of America’s biggest companies, including the likes of Cisco Systems and General Electric.
Companies have come out against the measures, saying that deducting stock options from earnings is impractical because their cost can only be estimated when the options are exercised.