Printing your Own Money
The interesting point about employee stock options is that prior to the 2006 fiscal year, companies did not need to list their options grants as an expense on their income statement. The income of the company would be overstated; the company would look like it was more profitable than it really was.
It’s no surprise that stock option grants became a very popular form of compensation during the 1990’s stock boom. Technology companies with skyrocketing stock values had a virtual license to print their own money with which to pay themselves.
Then the house of cards came crashing down. From 2000 through 2002, the stock market underwent a bruising correction, and technology stocks were especially hard hit. It was like having a hangover after the party of “irrational exuberance.†This shockwave forced a wave of corporate reform, punctuated with the scandalous collapse of companies like Enron and WorldCom.
