Yahoo! Goes Retro

Sometimes, denying the truth in the face of the obvious is so sad that it's funny. Like when the former Iraqi information minister went on TV as Americans were entering Baghdad to proclaim that, uh, Americans weren't entering Baghdad.

Other times, it's just plain sad. Like Friday, when Yahoo! (Nasdaq: YHOO  ) shareholders voted down an options expensing plan for the second consecutive year even as new accounting standards have emerged that are likely to require options expensing. The proposal was rejected by a 53% to 45% margin, according to a preliminary count of shareholder votes.

Yahoo!'s news comes at an interesting time, and in an interesting place. Silicon Valley is home to both Yahoo! and much of the opposition to options expensing. Yet several big Valley companies have recently seen their shareholders demand expensing, including Hewlett-Packard (NYSE: HPQ  ) and PeopleSoft (Nasdaq: PSFT  ) .

Having worked in Silicon Valley, I'm not really surprised. Despite the myth, options aren't some egalitarian gift to the rank and file. Indeed, the vast majority of options issued usually go to upper management, as fellow Fool Bill Mann has pointed out. It's no different at Yahoo!, where the top five executives other than CEO Terry Semel, who earned 2.9 million stubs for 2003, collected an average of 99,000 options last year. The other 5,500 employees split 20,606,000 options among them, for an average of 3,747. In other words, management's share of the options pool was, on average, 26 times greater than that of the rank and file.

Opponents of expensing will likely cite the Yahoo! victory as evidence that shareholders don't want options on the books. Don't you believe it, Fool. Think of it this way: Would you want to share your $500 of ownership interest with 49 acquaintances, or with 499 strangers? Exactly.

Without the yoke of options expensing, Yahoo! and others -- Intel (Nasdaq: INTC  ) comes to mind -- have proven that they are likely to continue issuing new shares with reckless abandon. The numbers are crystal clear on this point. In its most recent 10-K filing, Yahoo! says that, had options been expensed, its 2003 net income of $237.9 million, or $0.37 per share, would have fallen to $34.8 million, or $0.05 a share.

Watching as the options pile up at Yahoo! makes me wonder if Mr. Peabody has somehow pushed me into his wayback machine and turned the dial to the heady dot-com days of 1999. I sure hope not. This is one place where I could do without the retro.

Should Yahoo! expense options? Or was the shareholder vote as it should be? What's your prediction for which side will prevail in the options-expensing brouhaha? Let us know at the Yahoo! discussion board. Not yet a Fool.com member? Give it a try and get access to a diverse band of Fools learning and earning together.

Fool contributor Tim Beyers bore a striking resemblance to Mr. Peabody's sidekick, Sherman, in his younger days. He owns no interest in any of the companies mentioned, and you can view his Fool profile here.


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