All of the complicated, complex wheeling and dealing could be avoided if this country would institute a Consumer Tax -- which I've always supported to most everyone's astonishment.
It's no more difficult than predicting the future. Yes, one can "price" an option but the "price" is based on an assumption about the future value of the stock.
One thing no one has mentioned is what happens if the expensed stock option expires without exercise --- because the stock has gone south. Does the corporation then reverse the expense and eliminate the liability? In other words does the corporation show a higher profit and increased net worth because the stock has decreased in value? Is that what we want to happen?
In my experience people who propose radical reforms frequently do not think matters through.
Take a company. On July 15th, it has no outstanding executive options. Its share price is $20. On July 16th, it issues EOs to the extent of 100,000 shares, exercisable at $40 within five years. Using a popular option model (modified B-S-M, if you care) and observing the 5-year volatility of the share price to be 30%, we compute the theoretical fair value of the options, which turns out to be $1.80/share.
Are you claiming that the company has, in one day, incurred an 'expense' of $180,000? At the moment, the company's expense is entirely the cost of entering the options onto their books, call it 1 man-hour.
This is every bit as silly a viewpoint as when the Clintonoids tried to tax homeowners on non-existent 'imputed rent'. How have earnings changed? They haven't, not by a penny. There are already far too many bookkeeping fictions floating around, let's not add one more.
N.B. Now, if the options issued were IN-the-money, that's an entirely different matter.