By Marcy Gordon
The Associated Press

WASHINGTON - Once criticized as spineless in the face of lawmakers' pressure, the rule-setting board for corporate accounting now is poised to make a move with profound consequences for companies' profits and executive compensation.

If the Financial Accounting Standards Board has its way, companies as soon as next year would be required to deduct the cost of stock options given to executives and employees from the bottom line. That would be among the most far-reaching steps that the private rulemaker has made in its 30-year history.

But this isn't expected to be an easy win for the FASB.

A decade ago, its attempt to push similar changes through was blocked by Congress, and opponents of expensing - especially high-tech companies that donate heavily to both parties - are staging an all-out effort to have the same happen again.

Companies currently don't have to record the cost of options as an expense on their income statements. Instead, they must include the potential cost in a footnote, making it difficult for investors to gauge their effect on earnings.

Bipartisan legislation gathering steam in the House and simmering in the Senate would limit required expensing of options to those owned by the top five executives in a corporation. It would also prevent a new FASB mandate from taking effect until an economic impact study was done.

The anticipation of FASB action "has galvanized the effort even more," said Jeffrey Peck, a lobbyist and consultant to the formidable International Employee Stock Options Coalition. "It moves it from the abstract to the real."

"We are, it's fair to say, in constant blitz mode," Peck said.

Stock options are blamed by some for aiding the corporate abuses of recent years, by enticing executives at companies like Enron and WorldCom to manipulate earnings to boost the stock price and then sell their lucrative personal holdings.

Still, stock options remain a popular compensation tool that many companies, namely those in the technology business as well as at startup firms, use as way to motivate employees. They allow employees to buy shares at a fixed price and then sell them at a profit if the company's stock rises.

Those against expensing warn that rules requiring them to deduct options costs from earnings would stifle economic growth. They also contend that valuing those costs is far too subjective and would fill financial statements with inaccurate information.

The FASB, which is largely funded by the accounting industry and tucked away in seaside Norwalk, Conn., is far from the hurly-burly of Capitol Hill. But the legislative and lobbying battle being waged there impinges heavily on the rule setters, who are expected as soon as this week to issue a new expensing requirement soon in draft form.

The lobbying coalition includes such big-name companies as Agilent Technologies, Cisco Systems, Coors Brewing, Dell, General Mills, Intel and Sun Microsystems. Also: the Nasdaq Stock Market, home to numerous big high-tech companies; the National Association of Manufacturers; and the Business Roundtable, which represents chief executives of the largest U.S. corporations.

For corporate governance advocates, limiting mandatory counting of options to the top five executives would fall short by not giving a true picture of what they cost companies.

"If you wanted to rename this (legislation), it would be the 'Pander to tech companies that fill my campaign coffers"' bill, says Patrick McGurn, a special counsel for Institutional Shareholder Services.

FASB Chairman Robert Herz has told lawmakers that if Congress moved against the board's action on options, it "would be in direct conflict with the expressed needs and demands of many investors."

And the FASB surely doesn't want to be blamed for making the same mistake twice. In 1994, in what governance advocates view as a historic fiasco, the FASB proposed the very change for stock options it is now expected to make but then backed down amid intense pressure from lawmakers.

That was before the wave of accounting scandals of 2002, which rocked the stock market and investors' confidence in the integrity of corporate America, and raised a clamor for clampdowns by government regulators and industry watchdogs. Now, stiffer rules and standards for corporate conduct are the order of the day.

The chairman of the Securities and Exchange Commission, William Donaldson, and Federal Reserve Chairman Alan Greenspan support a move to mandatory expensing.

"Stock options are the 800-pound gorilla that has yet to be caged by corporate reform," says Sen. Carl Levin, D-Mich., who with Sen. John McCain, R-Ariz., has pushed legislation that would require options to be counted as an expense. "FASB ought to act as quickly as possible to put an end to dishonest accounting of stock options."

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On the Net

Financial Accounting Standards Board: www.fasb.org

International Employee Stock Options Coalition: www.SaveStockOptions.org