Labor Dept. Seeks to Protect Stock Options

Labor Department officials will tell Congress today that lawmakers must provide the solution to a quirk in labor law that might imperil lucrative stock options for millions of hourly workers.

“The Department of Labor supports the use of stock option plans which allow workers to obtain a stake in their employer’s growth, prosperity and profits,” Labor Secretary Alexis M. Herman said in a statement to be released today. “We recognize that the workplace is constantly changing, and that to maintain the spirit of the law, sometimes the letter of the law must change.”

At a hearing before the House work-force protections subcommittee today, the administrator of the Labor Department’s wage and hour division will recommend that Congress amend the 52-year-old Fair Labor Standards Act to exempt stock option plans from overtime calculations.

Congress and the Labor Department are responding to an employer uproar over a recent Labor Department advisory that profits from stock options may have to be added to the base pay of hourly workers when figuring overtime.

That directive, contained in an opinion letter to an unnamed company that was released late last year, could boost overtime pay for millions of hourly workers. But employer groups contend that the letter has caused many companies to put their stock option plans on hold out of fear of liability and paperwork burdens, even though the Labor Department has repeatedly emphasized that the opinion applied only to a single company.

Stock options once were granted only to senior executives, but have become a popular way to retain and reward employees at all levels. Stock options allow employees to buy their company’s stock at a set price, generally well below the market price.

The Labor Department does not want to discourage employers from offering stock option plans, said T. Michael Kerr, administrator of the Labor Department’s wage and hour division, in testimony obtained by The Times that was prepared for delivery today.

But because stock option plans are so complex and vary so widely, “we believe that the best solution would be to address this matter legislatively,” Kerr will testify. He will urge Congress to amend the Fair Labor Standards Act to exempt stock option profits from overtime calculations.

Based on a series of meetings with employer groups, Kerr will testify, the Labor Department has determined that several issues must be examined while drafting legislation, including what conditions are placed on the stock options, whether risks are fully disclosed, whether saving is encouraged, and to what extent a stock option program is tied to productivity or hours of work.