Stock option expense is an accounting term used to describe the cost associated with granting stock options to employees. This expense can be a result of hiring new employees or offering shareholders and existing staff an incentive to stay. Accounting standards dictate that all companies must report the cost of their stock option expenditure as expenses on their income statements, reducing the value of profits declared in their financials. By using stock option expense accounts, businesses make sure that they are accurately reporting their earnings and remaining compliant with applicable regulations.