EU companies that reward their brightest and best with stacks of stock options may think twice in future because a new accounting rule will force them to treat such benefits as a cost.

Stock options - the right to buy or sell shares at a set price at a future date - have been hugely popular, especially in the United States, as they do not have to be shown as an operating cost, allowing firms to reward workers ostensibly for nothing.

But an upcoming book-keeping rule, known as IFRS 2, will require firms to treat share-based payments as a normal form of remuneration, a change that will inevitably depress earnings, analysts say.

"It will be a totally new cost. This can only affect profits by pushing them down," said Richard Martin, head of financial reporting at the Association of Chartered Certified Accountants.

"Inevitably, if people's motivation for using this benefit was because they didn't carry a cost, there will be a change. That appeal will go away."

IFRS 2 is due to come into force on January 1, 2005, when around 7,000 European Union share-listed companies must start using International Financial Reporting Standards to allow investors to compare financial reports throughout the 25-nation bloc.

Jeannot Blanchet, managing director at Morgan Stanley, said companies in the IT, telecommunications and pharmaceutical sectors would be the ones most affected by the IFRS 2 rule as they have used stock options extensively in the past.

"Stock options are one form of compensation that in most countries in Europe has not been reflected in the income statement at all," Mr Blanchet, who carries out research on the impact of IFRS, said.

"No other form of compensation had been ignored as much."

The European Commission, which has the final say on whether new book-keeping rules should be introduced in the EU, will discuss IFRS 2 at an experts' meeting on November 30.

But the adoption may be delayed to a further meeting on December 20 due to concerns in some parts of the corporate world and difficulties in agreeing how options should be valued.

"IFRS 2 has been subject to a great deal of lobbying. If there is one accounting standard to be carried over to December, that would certainly be IFRS 2," Paul Rutteman, secretary general of the European Financial Reporting Advisory Group, which advises the Commission on accounting issues.

In the United States, where regulators are also introducing the expensing of options, the issue sparked a heated debate, with a number of high-tech companies saying the rule deprived them of a cheap incentive to motivate workers at start-up firms.

Communications chip firm Broadcom said last week it would have posted a third-quarter net loss of over £54 million, rather than a profit, had it expensed the cost of stock options.

The Commission, which is still recovering from a politically charged row over the endorsement of the IAS 39 accounting rule for banks, does not wish to see a repetition of that fight on stock options as it could damage the global move towards IFRS.