You seem to mis-understand the nature of stock options. It costs the company NOTHING to issue them.
What happens is the Board (or a committee of outside directors) award a manager or office the option to buy already authorized but unissued stock from the company at a specific price. That specific price is usually the option issue date's closing market price for that stock, but it actually can be any amount the board or committee chooses.
Sometimes the committee chose to set the option price at a previous day's low... thus increasing its current value on the day it really IS issued.
At some future date, the awardee can exercise the option, buying the stock (a piece of paper certifying ownership of a portion of the company) from the Company. They actually PAY the company for the stock... but they pay the option price, a price below the current market value of stock that is already issued.
For example, XYZ Company gives its CEO an option to buy 100,000 shares at the current market price of $10 per share. The company's stock on the market rises to $50 per share. The CEO is entitled to exercise his option and buy the 100,000 shares, worth $5,000,000.00 for only $1,000,000.00. He does not buy these shares on the Stock market. He buys them from the company. He hands over $1,000,000 to the company treasurer who deposits it in the company's bank account, and gives the CEO a piece of paper, which costs them pennies, signifying he owns 100,000 shares of XYZ Company.
The CEO can then turn around a sell the stock on the market at its current price... making $4,000,000, a large gain, which is taxable... but he has to have permission to do so from the government or at least announce his sale.
The company actually GAINS capital, more money invested in the corporation... just not as much as they would have gained had they sold those share into the stock market at market price on the day the options were exercised.
The real impact is that the already issued stock is "diluted" by the new shares.
"Dilution" means that when and if dividends are paid, the available profits to be distributed will be divided among more shares. For example if 100 shares of stock are in private hands and 50 unissued shares are in company hands, A dividend will be divided by the 100 issued shares and each share will receive 1/100th of the profits being shared. IF, however, the company issues 10 more of the 50 shares it has already authorized but not issued, and sells them into the market, any profits to be sold will have to be divided by 110 instead of 100.
The idea of giving options instead of stock is that by giving stock options, usually at the current value, the option will not become valuable unless the stock already on the market increases in value... thereby giving the managers who received the options an incentive to manage the company in such a way that the value of the stock goes up, benefitting them and current stockholders. They then get their reward by exercising the option to buy at the lower price. If the value of the stock goes down, the manager's options are valueless since you can buy the stock at less than the option's strike price.
Up until a few years ago, this was totally legal and required no bookkeeping entries until the option was exercised. Changes in Securities laws were made a couple of years ago requiring stricter reporting... but accounting regulations of HOW to report such options were not available until a few months ago.
The new theory is that the gain made in value between the option issue date, and the option exercise date can be treated as both an expense (officer compensation) and a gain (an investment that has earned value) that may trigger a taxable event. Now it has to be accounted for. The catch is that the law was made retroactive... meaning that perfectly legal transactions with no accounting impact made years ago, now have to be restated under the new law and regulation and now have an accounting impact.
Well done.