The Employee Ownership Update
May 26, 1995
FASB Issues Draft Rules for Options AccountingThe Financial Accounting Standards Board (FASB) has issued proposed rules for footnote disclosure of stock options. The new proposal should be made final in July. The value of the options for the disclosure would be either the fair value as of the grant, or, if in "unusual circumstances" this cannot be calculated, the fair value at the first point that can reasonably be calculated. Generally, this exception would apply where terms of the options make it difficult to know how many options will be exercised at what times. Determining a fair value for the options is still likely to be controversial, but footnote disclosure should have a very limited impact on how investors perceive a company's earnings. Many companies continue to argue that only the terms and conditions of the options should be disclosed. The FASB will encourage companies to fully account for the options in their income statements, but few will.
New Study on Exercising Stock OptionsA new study by Steven Huddart at the University of Michigan and Mark Lang of the University of North Carolina concludes that employees often exercise their options early, thus failing to maximize the theoretical value of the grant. The study was based on the behavior of over 50,000 employees at eight companies participating in broad stock option programs. While behavior varied considerably from firm to firm, rapid increases in stock price were an important trigger for employee decisions. The study suggests that option valuation models that assume people will get the full theoretical value of an option are incorrect.
Ziebart Now Employee OwnedPerhaps the employee owners of Avis can now take their cars to the employee owners of Ziebart for rust-proofing. Actually, it's just the franchiser that's now employee owned, not the franchises themselves. Still, the employees now own a $30 million- plus company.
USAir Employees Agree on ConcessionsUSAir union groups have agreed to substantial wage concession in return for a 20% ownership stake in the company and four seats on the board. Other investors must approve the plan. Major investors, such as Berkshire Hathaway and British Air, are not enthused about having employees on the board, so the deal still may not be completed.
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