Putting a value on options, of course, is harder than calculating other compensation. You have to estimate future value, for example. By changing the assumptions underlying that estimate, companies can sharply reduce the expense. Take volatility. High-tech companies depend on options for a very high share of compensation. To lower the cost of expensing options, they are sharply reducing the assumed volatility of the underlying stock. While a case can be made for a secular decline in stock market volatility (the S&P 500 index traded in a very narrow range in 2004), one Silicon Valley company is cutting its volatility assumptions in half.
Others are reducing the life expectancy of options or cutting the duration of options from 10 to 7 or 6 years to lower estimated future value. Some are extending the vesting period. Others are vesting all options from previous years.
The good news is that the assumptions underlying options' value are being made more obvious to investors. The bad news is that companies are going down many paths in expensing. There is no uniform accounting standard. We may be heading back to pro forma hell.