Amazon Exercises Leadership Options

Somebody had to do it. One of the surviving e-commerce giants had to take the stand and be the first to start accounting for stock options as expenses, which is exactly what they are.

That somebody, it turns out, is Amazon. The company isn’t quite breaking new ground: A half-dozen more traditional companies have already made the same move, notably Coca-Cola and The Washington Post. But the argument has always been that tech companies need the flexibility gained by not expensing options. How else, supporters of that position argue, can they attract great workers from traditional companies?

But Amazon seems to have recognized some simple truths: In times like these, leadership is difficult but absolutely necessary. And any effort to show the investing and buying public that you’re operating on the level will pay huge dividends down the road.

Stark Contrast

Amazon’s move seems even more impressive when compared with the reluctance of many othercompanies to do the same. Shortly after eBay announced earnings, CEO Meg Whitman appeared on television, explaining how stock options are an important component of dot-com compensation and how expensing them would hamper the company’s ability to attract quality workers.

But that’s just the point: If options are so important, they should be treated that way. The problem for many companies is that options are churned out by the millions each quarter. Expensing them, even at discounted levels, would often turn profits into losses.

It’s not clear whether that’s the case at eBay, which has booked a long and unbroken string of profitable quarters. But the question is a valid one.

Now’s the Time

To be sure, Amazon has a little cushion to work with in that respect. Except for a briefblip in the fourth quarter of 2001, the company is not yet consistently profitable. So why shouldn’t it make the move now, factoring in the need to carry the extra weight of options payouts toward the profit goal line?

No doubt there was plenty of calculating going on in Seattle before the decision was made. Jeff Bezos and Amazon do nothing without carefully exploring all the possible outcomes and side effects.

On balance, expensing stock options must have seemed a burden worth shouldering in exchange for the payout: a shot at good publicity in the financial press and a warm fuzzy feeling from investors.

Amazon’s decision stands out because of the overall economic climate, of course. Plunging stock markets are tied directly to accounting tricks, and it’s going to take some elbow grease to stop the runaway train and get it back on track. Amazon has rolled up its sleeves to get to work.

Who Will Follow?

The only question now is, will others follow? Let’s hope they do. Stock options are still a great way to sweeten employment deals and attract the type of great talent dot-coms need to help steer through turbulent waters.

But to deny that they have any value is to play by the old rules, the fast-and-loose ones that were OK on the way up but that don’t work when the train has derailed.

Amazon hasn’t exactly laid down the gauntlet. Its move wasn’t a challenge but a decision to do what’s best for Amazon. But in so many ways, as Amazon goes, so goes the rest of e-commerce. Let’s hope that holds true this time as well.

What do you think? Let’s talk about it.