(FORTUNE Magazine) – You might think investors would punish companies that have decided to expense stock options. After all, most of corporate America has been battling for years to avoid such a fate, worried that accounting for those perks would destroy earnings. And indeed, Merrill Lynch estimates that if all S&P 500 companies were to expense options, reported profits would fall 10% this year.

And yet, as a small but growing band of big-name companies makes the switch, investors have for the most part showered them with love. With a few exceptions, the stock prices of the expensers, from Cinergy to Fannie Mae, have outpaced the market since they announced the change.

What's going on? One possibility is that investors are rewarding companies for something that is sorely missing these days: honesty. The strong share-price performance may also support the argument put forth by fans of options expensing: Stock prices already reflect options costs--even if those costs aren't deducted from the income statement.

Whether investors will reward every firm that makes the switch remains to be seen. Tech firms, which have traditionally relied on big options grants, have been particularly reluctant to account for the cost. Indeed, Merrill calculates that Amazon's earnings would swing from a narrow profit to a wide loss were it to account for options. The stock has dropped 11% since it made the move. One big tech holdout: Microsoft. Merrill figures that expensing options would take a 22% bite out of Mr. Softee's 2002 earnings. A couple of billion dollars? These days that's a small price to pay for a halo of integrity. --David Stires

Estimated % change since 2002 EPS announcement[2]

Options With Company The few, expensing Without options stock the brave announced options expensed[1] price S&P 500

Cinergy CIN July 24 $2.80 $2.77 22.4% 7.8% Washington Post WPO July 15 $20.48 $20.10 16.4% -6.7% Computer Associates CA July 29 -$.46 -$0.62 11.1% 0.8% Fannie Mae FNM July 23 $6.15 $6.02 6.7% 4.8% Bank One ONE July 16 $2.77 $2.61 2.6% -6.4% General Motors GM Aug. 6 $5.84 $5.45 2.6% 3% Procter & Gamble PG Aug. 5 $3.57 $3.35 -2.3% 2.9% Coca-Cola KO July 14 $1.79 $1.70 -6.2% -6.7% General Electric GE July 31 $1.65 $1.61 -6.2% -4.8% Amazon AMZN July 23 $0.04 -$0.99 -11.4% 4.8%

FORTUNE CHART/SOURCES: MERRILL LYNCH; COMPANY REPORTS

[1] Assumes options expenses for 2002 are the same as 2001 and that all outstanding grants are counted. [2] As of 8/6.