Public companies must count the stock options they award their employees against profits, under rules that took effect last year - a mandate that can sharply reduce the reported earnings of many big companies, especially in the options-loving high-tech industry. A few companies have urged the Securities and Exchange Commission in recent years to approve various market-based methods for valuing options, as opposed to the academic models in force.

The SEC rejected those proposals. But now the agency has told Zions, the Salt Lake City-based financial services company, that its auction system could be used to calculate market-based values for employee stock options.

''The SEC staff concurs with your view that the [auction system] is sufficiently designed to be used as a market-based approach to valuing employee share-based payment awards,'' the agency said in a Jan. 25 letter, which the company announced in a news release Tuesday.

In its system, Zions created ''tracking securities,'' called employee stock-option appreciation rights securities, that emulate the options it awards employees.

The company sold them to sophisticated investors in an auction last June, providing a market value for the options based on bids received - which was only about half of that derived from academic models.

''This is great news for all option-granting companies," said Evan Hill, a Zions vice president. "Companies can now have the market tell them what their [employee stock options] are worth.''

The SEC did attach some conditions to its approval, including a requirement that the auctions be conducted on or near the date on which the stock options are granted to employees.

Stock options allow employees to buy shares of their company's stock in the future at a set price. If the stock rises before the options are exercised, the employee can buy the stock at the predetermined, lower price, then sell it at the higher, current price - and pocket the difference.

Corporate America has been embroiled in a scandal over suspected manipulation of the timing of options grants to enrich top executives at numerous companies.

More than a hundred public companies are under investigation by the SEC and federal prosecutors, and 18 CEOs have been swept out.

Most of the cases have involved backdating, in which options are issued retroactively to coincide with low points in a company's share price so recipients can sell their shares at higher market prices.

In anticipation of the popularity of its new valuation method, Zions has applied for a patent so that it can handle auctions for other large companies, Hill said. The bank might eventually conduct as many as 50 auctions a year, charging $200,000 for each one, he said.

Zions valued stock options last year with the widely used Black-Scholes mathematical pricing model. The test auction established a value of $7.50 each, compared with a value of $15.02 derived under the Black-Scholes model.