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US securities regulators have overruled an attempt by the technology industry to weaken the impact of a controversial new accounting rule for employee stock options, driving another nail in the coffin of an employee perk that turned many Silicon Valley workers into millionaires during the 1990s.

Tech companies, led by Cisco Systems, have pressed the Securities and Exchange Commission in recent months to let them use a favourable method for calculating the value of employee options under the new rule, which forces them to deduct options costs from profits.

If widely adopted, the method proposed by Cisco would have had a “very significant” impact on the effects of the rule, reducing the “hit” to earnings by 20-30 per cent, said Bob Willens, an accounting analyst at Lehman Brothers.

On Friday, however, the SEC issued accounting guidance that ruled out the Cisco approach, ending a final rearguard action from the tech industry after a long battle against options expensing. While supporting some of the ideas behind Cisco’s approach, the SEC rejected the key technical element that would have resulted in the lower valuation, said Mr Willens.

Donald Nicolaisen, chief accountant, said that while “alternative views and new facts” were possible, the SEC for now had “significant doubts” about the accounting treatment proposed by Cisco - a red flag that is likely to kill the approach.

Tech companies, which have traditionally used options far more liberally than other US companies, have already cut back on the number of options they issue in anticipation of the lost earnings they will suffer from the new rule, which comes into force for all US companies at the beginning of next year.

That has spelt an end to the big options benefits that characterised Silicon Valley’s golden age. “It’s the new reality: when you give something that’s perceived as free, you’re a little less careful,” said Bernard Lietaud, chief executive officer of Business Objects, a French software company whose shares are traded in the US.

Partly as a result of the new accounting rule, the company has already reduced the number of options it hands out by 40 per cent and has abandoned giving them to all workers, instead limiting them to 30-40 per cent of employees, he added.

Cisco refused to comment on the specific issue to which the SEC objected, but said it would “continue an open dialog and pursue an approach that will lead to an objective, market-based valuation” for options.

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