With respect to this topic, a few months ago Phil Livingston warned the IASB to back off. As president of the FEI, Phil stated (in the November issue of Financial Executive):

" … we had been through 10 years of debate on this subject in the U.S., and were not interested in reopening the huge wounds that resulted from the battle with the FASB … Neither side has changed its view of this issue, and neither will. I suggested that they recognize the reality that stock option accounting is not going to change in the U.S. Therefore, they should get the issue off their plate and adopt a disclosure-based standard using whatever valuation method they deem theoretically correct."

Unfortunately, Phil, I couldn't disagree with you more.

While we have been through a decade of debate, the wounds that occurred have not healed. They still fester because the principle of accounting truth remains a good cause, and the wounds will not heal until treated with the appropriate medicine. As long as corporate America continues to suppress reporting reality that would allow the American public a better understanding of what top executives make, then the smell of decomposition will waft across corporate boardrooms. If you don't like the odor, then remove the decay.

Phil, you are correct that proponents for recognizing stock options as compensation expense won't change their view, but I am less confident about you and the rest of the opponents. I hold out hope that you will come to your senses and realize that corporate America needs capital from stock market and credit market participants. If you can see that, then I expect that you will next comprehend the urgency for managers to deal with them in a truthful and straight-forward manner. If financial executives continue to hide the truth about management compensation, then they run the risk that investors and creditors take their money elsewhere.

One reason for my optimism is that Standard and Poors has announced recently that when it computes core earnings, it will deduct stock options as compensation expense. As more players in the capital markets start making such adjustments, your position loses support.

I also wouldn't get too cocky about thinking that U.S. accounting won't ever change because Enron has transformed the thinking of investors and creditors. These investors and creditors remember that accounting does matter and will demand change. Yes, there is a danger that if you and your buddies stall the process, then they might forget or give up. But I won't. And neither will my colleagues who understand the need for telling the truth in corporate reports. We shall hound you and pester you with our message that stock options do constitute pay to corporate managers.

But why are you afraid of revealing how much corporate managers are compensated? Are you afraid of bad press? Are you afraid that laborers might not understand why you are getting paid so handsomely? Are you afraid that people will see how much impact your salaries and bonuses have on the bottom line? Or maybe you are afraid that corporate America can't justify the pay of senior business executives? Whatever it is, I think you have to do better than hiding the information.

Phil, it would be better if you tried to help the capital markets instead of using them. If you tried to find win-win solutions, you might make things better for everybody.

In the meantime, I suggest that members of the IASB marshal their courage and fight the good fight. Telling the truth about stock options will improve matters for everybody.

Finally, I suggest that the FASB reopen the subject. While some constituents might tire from the debate, many of us won't rest until you get it right. Use this Enron moment and leverage the power you have with Congress, the SEC, and the press to reform the system. It is past time for accounting for stock options as compensation.

J. EDWARD KETZ is associate professor of accounting in Penn State's Smeal College of Business Administration.