Expensing the Golden Goose

Coca-Cola has beat Congress to the punchbowl.

The drink giant announced this week it will alter its accounting ways and do the real thing by listing stock options given to executives as a business expense. That will help deflate an incentive for the company to inflate its stock price with bogus numbers.

Coke's move could start a stampede toward such accounting transparency among companies desperate to woo back fleeing investors.

Congress, on the other hand, has long begged off forcing such a change on company balance sheets. Rich campaign donors in Silicon Valley made sure of that. Twice in the past week, the Senate, in its manic rush to pass post-Enron financial reforms, voted not to change stock option rules.

Lawmakers probably aren't the best ruling body to write accounting rules anyway. That role is best left either to a Coke-led market adjustment, or to a new federal accounting regulatory body that Congress likely will set up soon.

Stock options were a key tool in the '90s for innovative start-up companies that were short on cash for worker compensation but long on promise of big profits.

These growth firms still need stock options if the US wants to maintain the job-producing innovation they bring. And listing stock options as an expense will greatly reduce their reported earnings, and not attract as many investors.

But even Fed chairman Alan Greenspan said yesterday that stock options can provide a "perverse" incentive. Unless executives are forced to hold their options long term, they will continue to be lured by the potential for personal gain in falsifying numbers that raise company stock prices in the short term.

Last week, President Bush warned of "the lure of heady profits" that "spawned abuses and excesses." And Mr. Greenspan talked of the "infectious greed" that broke down the trust needed in the business community.

Reforming stock options won't be easy. They have become an international problem that even Europe is now trying to solve.

Innovation and growth in high-tech must be preserved. But companies must rein in the use of stock options.