Letter published in Financial Times

Sir, The US Financial Accounting Standards Board's new stock option rules came in for harsh criticism in your articles of December 29 ("Wall St braced for stock option confusion" and "Accountants' new tool leaves options open"), mainly from those wanting to curry favour with their investment banking clients. Unfortunately, you did not solicit comment from the FASB.

Whether or not the new rules produce garbage numbers, as one commentator described it, the key is to focus on the stock-based compensation expense that companies deduct on their tax returns. The expense is equal to the discount at which companies issue stock to employees. Even a fifth-grader can understand the math. Strange how companies can "dispute whether options represent a true business cost" and then have no problem deducting a stock-based compensation expense on their tax returns.

For the record, Cisco claimed a stock-based compensation expense of approximately $2bn on its tax returns the past three years. Under the new FASB rules, it would have expensed $3.5bn in stock-based compensation during the same period.

During the past three years, it reported net income of $13.7bn and spent $25.3bn on repurchasing 1.372bn shares. Cisco employees hold stock options to acquire 1.436bn shares. Cisco shareholders are on a treadmill to nowhere, regardless of how the FASB's rules obfuscate the issue.

Albert J. Meyer