The plethora of accounting scandals that broke out after the Enron debacle has drawn attention to expensing stock options. Experts believe the widespread overstatement of earnings due to the non-recognition of option expense is misleading investors about the true earnings capacity of their companies. The debate on whether or not stock options must be expensed has divided corporate America into two rival camps. There is also a debate on when to expense the stock optionsat the time of issue or at the time of exercise by the employee. As 2004 progresses, the debate on expensing stock options has become more intense.

Corporate compensation policies have evolved over time as companies looked for innovative ways of motivating employees. Employees are compensated in various ways such as cash wages, bonuses, perquisites and stock options. Information technology (IT) companies primarily use stock options to motivate and retain talent. In the simplest and most common form, a company grants options that give an employee the right but not an obligation to buy the company's stock at some point in the future at a predetermined price. For instance, a company might issue options on January 1, 2003 to an employee to purchase 1,000 shares of its common stock at a price of Rs. 100 per share. If the share price exceeds Rs. 100, the employee could exercise his/her option and make a profit. For example, if the share price reaches Rs. 200, the employee could book a profit of (200 _100) (1000 = Rs. 1,00,000).