Apple's earnings stand to be hit by a decision by the Federal Accounting Standards Board (FASB) that requires companies to treat stock options as expenses.
According to Credit Suisse First Boston, Apple's earnings of 19 cents per share would have been reduced by 46 cents, or 242 percent if the new accounting system had been implemented last year.
According to a Reuters report, it is technology companies, who often dole out hefty options packages to executives, that will be hit the hardest by the new accounting standards. Other technology companies that will take a large hit include Nvidia, PeopleSoft, and NCR.
Cnet reports that following the decision by the FASB, RSA Security's chief executive Art Coviello told a House Financial Services subcommittee: "The mandatory expensing of all employee stock options is without any clear or generally accepted accounting rationale. It will destroy broad-based plans as we know them and the productivity, innovation and economic growth they generate."
Mark Heesen, president of the National Venture Capital Association told Cnet: "Our country's small, start-up companies are being threatened by the Financial Accounting Standards Board's quest to unilaterally mandate the expensing of employee stock options."
"International convergence of accounting standards such as mandatory expensing will touch the US and Europe, not China and India, where, we fear, accounting standards more supportive of stock options will drive more highly skilled jobs offshore."
A Pearl Meyer & Partners survey shows that on average, CEO pay shrank by 8 per cent in 2003, to $9.2 million – but all of the decline came from a sharp drop in the amount of options granted to them last year.
According to the New York Times: "Chief executives received an average of $2.9 million in stock, perquisites and payouts of long-term incentives, up 32 per cent from $2.2 million in 2002. Excluding the value of options granted in the last two years, those CEO's received, on average, total compensation of $5.9 million, up 23 per cent from an average of $4.8 million in 2002.
"Nearly two-thirds of the companies surveyed paid more cash to their chief executives in 2003 than in 2002, but only about 1 in 10 gave them more valuable options."
Pearl Meyer of Pearl Meyer & Partners said: "This is the beginning of the redesign of executive compensation. We're just on the threshold of much more change this year."