And you thought accounting was dull? After staging a highly public debate last year over how to account for goodwill in mergers, Washington lawmakers and business lobbyists are at it again in a high-profile battle over another seemingly arcane accounting rule—whether employee stock options should be treated as an expense. A high-powered lineup that includes, among others, über-investor Warren Buffett, President George W. Bush, and Federal Reserve chairman Alan Greenspan have weighed in on the current accounting rules, which do not require companies to include the value of most stock option grants as employee compensation and, hence, to subtract them from pretax profits. Critics argue that the practice permits companies to inflate reported earnings and, presumably, stock prices. Executives and boards, however, are focused on the importance of stock options as a means of attracting and retaining talent.

There is plenty of heat in this debate, but unfortunately far too little light. Indeed, the discussion of accounting treatment and its effect on share prices is something of a red herring, distracting discussion from the more important issue: do stock options as they are currently structured do a good job of aligning the interests of shareholders, who own companies, with...