Senate: Stock Option Expensing Likely
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WASHINGTON -- Senate Republican technology leaders admitted today it will be difficult to stop the looming June deadline for corporations to begin fully expensing employee stock options, a move the IT industry fears will dent profits and hurt employee recruitment.
Currently companies are allowed to blur the potential bottom-line impact of stock options on their financial statements in a footnote, but in the aftermath of accounting scandals at companies such as Enron and WorldCom, the Financial Accounting Standards Board (FASB) ruled corporations must set an actual value on stock options.
The rule has drawn the widespread support of a number of industry sectors with the notable exception of IT. Federal Reserve Chairman Alan Greenspan, Securities and Exchange Commission (SEC) Chairman William Donaldson and billionaire investor Warren Buffett have all endorsed the proposal.
With the new standard accounting practice set to take effect in a little more than 90 days, the tech industry has been aggressively lobbying Congress to either override FASB or at least delay the implementation of the stock option expensing rule.
Last year, the U.S. House of Representatives voted to mandate the expensing of stock options granted to the CEO and the next four most highly compensated officers of a company but exempted the expensing of stock options for all other employees.
Comparable legislation in the Senate never came to a vote, and members of the Senate Republican High Tech Task Force predicted Wednesday the prospects for action before the June 15 deadline are no better this time around.
"It will be very difficult," Sen. George Allen (R-Va.) said. Sen. Richard Burr (R-N.C.) added that any vote to overturn the FASB rule would be a "close one and a tough one."
The task force is a 14-member panel created in 1999 to advise Republicans on technology issues. According to the group's policy platform, the FASB rule will "lead to the destruction of broad-based employee ownership and will impact U.S. global competitiveness."
The group now seeks to delay the rule "until field testing can occur and valuation models can be improved or fundamentally changed."
"We're going to fight as hard as we can," Allen said. "Our group thinks it is a great idea to 'incent' employees beyond a paycheck."
Sen. John Ensign, chairman of the task force, said the group would be meeting with the SEC in the next few days to discuss the issue.
Stock options have long been a popular form of compensation for tech-industry employees, particularly for start-ups with little cash to attract talent. TechNet, the 150-member exclusive lobbying network of technology CEOs and senior partners, was in Washington this week with the FASB rule near the top of its agenda.
Venture capitalist John Doerr, a co-founder of TechNet, said Tuesday at a media briefing, "When it comes to the future of innovation, the most important thing we can get right is to protect broad-based employee ownership in the form of stock options."
According to Doerr, nearly 14 million workers receive stock options, and 80 percent of them earn less than $75,000.
"For those policy makers who felt that expensing, in effect, eliminating stock options, would deal with executive compensation abuse or somehow had something to do with the scumbags at WorldCom, Tyco and Enron, they are mistaken," added Doerr. "They are throwing out the baby with the bathwater."
Doerr added, "In recent days, for example, Time Warner, Pfizer and others have announced they are no longer going to use this powerful incentive to motivate their workforces. Pfizer in fact said no one will be granted stock options in the future except for the most senior executives."