Advisory May Imperil Worker Stock Options
The modern marvel of the high-tech secretary turned millionaire through stock options--as well as such benefits for millions of other American workers--is in peril because of a Labor Department advisory letter that has evoked an uproar among employers.
Labor Department officials said that overtime payments should include the value of exercised options in base pay, an opinion that could affect hourly workers who have received the option grants that have proliferated widely through the workplace.
Corporations, employer groups and congressional Republicans are demanding that the Labor Department withdraw the advisory letter recently made public. They contend it would kill this increasingly popular way of attracting and retaining employees in a tight job market.
The organizations say the Labor Department interpretation would dissuade employers from giving stock options to hourly employees because of the increased cost, paperwork and liability that would come with figuring out back overtime for each worker.
“This issue obviously affects thousands and thousands of employees out there,” said Cory Siansky, spokesman for LPA, a Washington-based organization representing more than 250 large employers, which last week sent a letter to Labor Secretary Alexis M. Herman asking her to reconsider the interpretation.
“For any member companies who were about to implement a new stock option plan, they’re putting it off,” Siansky said. “For those members that have stock option plans in place, they have put any new grants of stock options on hold until this issue is resolved.”
The controversy is reminiscent of the uproar caused earlier this month by an opinion letter from the Occupational Safety and Health Administration that said employers are responsible for health and safety problems in home offices. Herman quickly withdrew that directive.
Howard Waddell, acting assistant secretary for public affairs, said Labor Department officials plan to meet with LPA officials and other organizations to address their concerns but are not planning to rescind the letter.
Stock options--the right to buy stock at a fixed price--were once reserved only for senior executives but in recent years have become a popular way to reward lower-level employees or to boost worker compensation without increasing wages.
The Oakland-based National Center for Employee Ownership estimates that employees own nearly 9% of total corporate equity in the United States. One-third of firms recently surveyed by the Federal Reserve said they offer stock options to some employees other than executives. The group figures that 7 million American workers participate in broad-based stock option plans--including salaried managers and professionals, and a broad cross-section of hourly workers.
In the opinion letter sent to an unnamed company, officials in the Labor Department’s Wage and Hour Division said that profits from stock options exercised by hourly employees must be considered part of their base wages and therefore would retroactively boost the overtime pay of those workers.
The letter determined that the company’s stock option plan, which required that employees stay with the company for three months to qualify, was not exempt from the Fair Labor Standards Act.
As a result, the options could not be considered a gift, as a Christmas bonus would be, because they are tied to hours worked or a production goal. Neither was it a profit-sharing plan. Each employee’s profits, therefore, must be considered part of the employee’s base pay.
Because overtime is figured as a percentage of base pay, each hourly employee would be owed extra overtime after cashing in stock options, employment law experts said.
“This is a big deal for employers and employees,” said Larry Shapiro, a lawyer and publisher of California Employer Advisor, a newsletter on employment law. “If you’re an employer, this could be a big headache. If you’re an employee, this could be a double bonus.”
Opinion letters are not regulations but are generally considered indicators of how the Labor Department would rule in similar situations.
“This was a very specific response to a very specific set of concerns,” Waddell said. “It was never intended to be a general statement about stock option plans.”
Nonetheless, employers are concerned that the letter could have a broader effect.
Among the major companies that could be affected by the Labor Department opinion is Starbucks, which extended stock options last year to about 19,000 workers--many of them part-time or hourly employees.
“We’re aware of it, but we understand it’s just an opinion letter,” said spokesman Alan Gulick. “We’ll be watching it closely.”
Gulick said the firm offers the options to all employees who work at least 500 hours from April 1 to the end of its fiscal year and who are still working when the options are distributed the following January.
Several House Republicans issued statements blasting the letter.
“The federal government should be helping to expand opportunities for rank-and-file workers to become shareholders in their companies--not putting roadblocks in their path,” said Rep. John A. Boehner (R-Ohio), chairman of the House Education and the Workforce Subcommittee on Employer-Employee Relations.
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Times staff writer Jeff Leeds contributed to this story.
