With the comment period closed Oct. 1, the Financial Accounting Standards Board is mulling the 18 letters it received on its proposed staff position regarding how companies can comply with grant rules associated with stock option expensing.

Those who entered the debate focused primarily on whether FASB’s language was too vague in prescribing a “relatively short” period of time to be allowed for companies to communicate option grants to their employees, and whether companies should be allowed to apply the guidance immediately or in the reporting period following the staff’s final guidance.

Debate also focused on whether giving employees specific performance targets for their granted options creates a disclosure problem for companies because it requires management to tip its hand with regard to its growth strategy.

Cook

“The SEC [Securities and Exchange Commission] and IRS [Internal Revenue Service] allow nondisclosure of goals in proxy statements for competitive and market-signaling reasons,” wrote Frederic Cook, an executive compensation consultant, in his letter to the board. “Some plans have hundreds of participants, and disclosure of goals to them would be tantamount to public disclosure. Disclosure to participants could even trigger Form 8-K disclosure of goals.”

The guidance, issued as a proposed staff position, is titled “Practical Exception to the Application of Grant Date as Defined in FASB Statement No. 123(R).” It says companies can do as they’ve done for years, which is to set the grant date for a stock option award as the date a company’s board of directors or compensation committee approves the award, as long as employees are notified in short order and the award is non-negotiable.

The position spares companies the huge administrative issues associated with the language of the original statement, which says companies must set the grant date as the date on which the company and its employee have a “mutual understanding” of the key terms and conditions of the option grant. Companies called for a more practical grant date provision because communication is usually one-on-one with employees, creating staggered grant dates that would complicate the valuation process.

FASB is expected to finalize its guidance quickly as companies are already in the process of adopting stock option expensing rules.

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