Are you a faithful employee of a company that grants you stock options every now and then? If so, find a chair and sit down. I've got some bad news for you. Stock options may soon go the way of the dodo bird and saber-toothed tiger.
Media conglomerate Time Warner
Learn more about what Fool analysts think about expensing options and the FASB decision in these articles:
- Whitney Tilson: Coalition of the Greedy
- Whitney Tilson: Stock Options Hurt U.S. Competitiveness
- Chris Mallon: Optional No Longer
- Bill Mann: Buffett Rips Congress on Options
- Paul Elliott: An Investor's Worst Enemy
- "For the third consecutive year, the number of new grants at America's 200 largest companies declined in 2003, with nearly two out of three cutting back." Computer maker Dell
(NASDAQ:DELL), for example, awarded 60% fewer stock options to employees in 2004 than in 2002. Even bigwigs are affected, with Sun Microsystems (NASDAQ:SUNW)CEO Scott McNealy was awarded 1.5 million options in 2004, down from 3.5 million in 2002.
- "For companies in the Standard & Poor's 500-stock index, Bear Stearns
(NYSE:BSC)says option expensing would have reduced net income from continuing operations by 3% in 2004, from an 8% drop in 2003, in part reflecting an improved earnings picture last year." But among the more technology-oriented (and options-oriented) Nasdaq 100 firms, operating income in 2003 would have been a whopping 44% lower had options been expensed.
- Many firms are now issuing direct grants of stock to employees, instead of stock options, which are more troublesome for accountants to deal with. General Electric
(NYSE:GE)is cited as having replaced more than half its options awards with stock awards.
Some pundits are worrying that doing away with options will hurt employee morale. That seems silly. There are lots of ways to motivate and reward employees -- stock options are not the only choice available. And as a recent New York Times article pointed out, at many firms that have handed out gobs of options, a big chunk of them have turned out to have little or no value.
This offers a lesson for us workers: Don't count on options to make you rich. Instead, learn about lots of retirement plans that can help you -- perhaps right here, in our rich Retirement nook. And if you'd like a professional advisor to help you get your house in order, let us help you pick a good one.
Longtime Fool contributor Selena Maranjian owns shares of Time Warner and Microsoft.