Indeed, 45 percent of respondents said expensing options would negatively affect their earnings by 5 percent or more, which could further depress stock prices.

Another reason why this issue is important to companies: stock options are the only long-term incentive program for 72 percent of the respondents.

"I am expecting a very large correction in executive pay," said Kesner in his statement. "Expensing options, combined with efforts to keep within stock dilution guidelines, will force many companies to cut back on grants to senior managers and perhaps eliminate them entirely for middle managers and professionals. The resulting widespread drop in executive and middle management pay may cause people to feel less wealthy, leading them to curtail spending, which has been propping up the economy."

As a result, companies are looking at alternatives to options to compensate their key people.

For example:

• 61 percent are considering a return to cash-based performance plans.
• 49 percent are looking at performance-vested stock options.
• 45 percent are evaluating performance-vested restricted stock.

The responses total more than 100 percent because most companies surveyed said that more than one approach would be used.

Short Takes

• The SEC filed charges in U.S. District Court against Lernout & Hauspie Speech Products, alleging that the developer of speech and language technologies inflated revenues and earnings from 1996 through the second quarter of 2000. "The result was an international financial scandal, the destruction of Lernout & Hauspie as an operating company, and a loss of at least $8.6 billion in market capitalization, borne by investors in Belgium, the United States, and elsewhere," according to the regulatory agency.

• Barbara T. Alexander, a director who served on the audit committee at Homestore Inc. since April 2001, resigned from the board. "Her longstanding leadership regarding corporate governance, including assisting the company in the implementation of rigorous internal audit controls, the adoption of a companywide code of conduct and the introduction of an anonymous 'whistle-blower' program, will continue to serve Homestore very well," said Homestore chairman Joe Hanauer in a statement.

At the beginning of the year, Homestore warned that it would restate revenues for the first three quarters of 2001 by between $54 million and $95 million. Alexander supervised the company's finance department after chief financial officer Joseph Shew resigned in early December 2001.

• Moody's Investors Service downgraded the long-term ratings of J.P. Morgan Chase & Co. from Aa3 to A1. Moody's also cut the long-term senior ratings of all of J.P. Morgan Chase's bank subsidiaries by one notch, from Aa2 to Aa3. The outlook for all ratings is stable, it added.

Moody's said that the downgrade reflects its concerns regarding the medium-term outlook for JPM Chase's business performance in the context of longer-term concerns about the prospects for the successful execution of its investment banking and capital markets strategies. "JPM Chase's financial performance has lagged behind similarly rated peers during this cycle," it added. "Moody's is concerned that JPM Chase's recent problems may further complicate its ability to execute its capital market strategy, which has so far met with only partial success."

• Viacom Inc. said that from time to time it would repurchase up to $3 billion of its stock. The new program will begin with the completion of the company's most recent $2 billion market purchase program, under which Viacom has purchased approximately $1.8 billion in Viacom stock since February 2001. Viacom will finance the purchase program with cash flow generated by the company's operations.

• SEC chairman Harvey Pitt indicated that he would exempt auditors in the European Union from U.S. supervision if the EU set up its own regulatory system. "We want to make sure that no one is subject to duplicative regulation," he told Dow Jones.

The EU Commission reportedly is not happy about the United States's plans to create an accounting oversight committee that would have authority over non-U.S. auditing firms. As a compromise, the EU Commission said it would consider setting up its own accounting oversight committee based on the U.S. model.

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