MIT’s Stephen Ross backs expensing proposals

Stephen Ross says the US Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have done a good job vis-a-vis proposals for the mandatory expensing of employee stock options.

The new accounting proposals have proved controversial with some corporates. During the last couple of years, US technology companies in particular have claimed that mandatory expensing will hinder their ability to grow business and retain talented staff, and that the lack of a universally accepted valuation method renders the exercise meaningless. Meanwhile, Ross, the Franco Modigliani Professor of Finance and Economics at the Massachusetts Institute of Technology (MIT), voiced his approval of the proposals on the opening day of the Risk Europe conference yesterday.

During his morning plenary address, Ross focused solely on the thorny issue of executive compensation. He highlighted some disconnects that exist between the incentives that traditional option programmes are supposed to engender, and what happens in reality.

He often returned to the topic of compensation during an afternoon session where he fielded questions from the floor. Other subjects broached during the hour-long session included the future of interest rate derivatives modelling, corporate governance and accounting asymmetry.

Ross has a hand in the development of several groundbreaking techniques, theories and models in finance, including arbitrage pricing theory, the binomial model of option pricing and the Cox-Ingersoll-Ross interest rate derivatives pricing model.