In the wake of corporate scandals causing some workers to lose their retirements, politicians, the investor class, and money managers began investigating how they could have been duped by the Chief Executives and Chief Financial Officers of the corporations whose stock comprises countless retirement plans across the country. Many believe one way investors were deceived was by an accounting rule that does not require one prominent form of executive compensation to show up as an expense on the books.
             Essentially, stock options are contracts that give their owner the right to buy shares of stock of a company at a predetermined "strike" price on a specified date, generally seven to ten years into the future. If the stock price of a company rises, the owner of the options makes money because he gets to pay the price specified in the contract, which will be lower than the actual stock market price. The difference between what he has to pay and the market price is paid the company. Since the job of an executive is to make money for the shareholders, his pay should be linked to making money for the shareholders. There is no question about that, all people should be compensated according to how well they do their job.
             The real debate is whether showing stock options as an expense will achieve the result of increasing shareholder wealth over the long-term. Proponents of expensing say stock options cost the company cash, which reduces the amount of money available to shareholders, therefore options should show up as an expense on the financial statements. Seeing the expense alerts shareholders that the company may have to shell out a good bit of cash in the future, and the warning allows them to make a better investment decision. Waiting until the company actually has to pay the cash to report the expense is too late, shareholders are buying stock today so they need the information today.
             Opponents of expensing stock optio...