Today’s W$J has an article about Zion Bancorp’s plan to register and sell to the public stock options that mimic the stock options it grants to its employees . It seems like another good example of the unintended consequences of disclosure regulation that Geoff has blogged about before (see here, here and here). Zion does not plan to issue the options to raise capital but instead, because employee stock options (“ESOs”) are now required to be expensed (see here and here), to establish a market value for ESO accounting purposes. Apparently Zion is assuming that the market value will be lower than that generated by the option valuation method it currently uses for ESO accounting purposes. It will then use this lower value when expensing its ESOs thereby reducing the hit to income from issuing ESOs. Perversely, according to the W$J, “[t]he lower price would help to offset the company’s cost of issuing the options-linked securities.” Huh? Aren’t we just talking about different accounting treatment but no difference in economic substance?
Zion to register options tied to employee stock options.
Bill Sjostrom — 8 June 2006