FASB Awaits "Thank You" from Microsoft Employees
If a company awards stock options and later reprices those options, FASB rules require that the repriced options must be charged against profits. In a small company where the value of the options is minimal, this might not make much of a difference to the bottom line. But if you happen to be Microsoft, and you're looking at having to offset your profits with a $30 billion adjustment over the seven-year life of the options, you may want to rethink the repricing strategy.
Microsoft issued options to its employees last summer, assuming the price of its stock would continue to rise. Instead, Microsoft's stock value dropped, the option price exceeded the market value of the stock, and employees weren't happy.
Instead of repricing the options, which would have resulted in the charge-off against profits, Microsoft issued new options. Issuing the new options circumvented the FASB charge-off rule. Microsoft is happy, the employees are happy, life is good...