Letter sent to Wall Street Journal

According to Mr. Jenkins (A Typical Miscreant - II, January 3, 2007), expensing stock options "creates a junk number, of zero analytical value." It took the Financial Accounting Standards Board (FASB) thirteen years to draft SFAS 123, instructing companies to hide the "junk number" in the footnotes, and another 10 years to issue a revised set of rules (SFAS123R), bringing the "junk number" out of obscurity and into the income statement. FASB owes an explanation to Mr. Jenkins and the investing public as to why SFAS123R - a 285-page document - deserves more respect. This could ease shareholders angst about paying public accountants serious money for wasting their time in the audit of "junk numbers." I predict a deafening silence from FASB.

Both Jenkins and FASB miss the point. Companies perform a straightforward calculation to arrive at a stock-based compensation expense for tax purposes, a real number that represents the net cash cost of buying back the stock dished out to employees in lieu of cash wages. The cost of stock repurchases that mop up the dilution caused by stock-based compensation is not a junk number. It is hard cash out the door akin to the settlement of a deferred compensation liability; and it blows the cover on this circuitous method of compensating employees with warrants - not "options." Let's use the correct terminology.

Sincerely,

Albert J Meyer