House OKs Bill Aiding Offers of Stock Options to Workers

The House of Representatives passed, 421 to 0, a bill that eliminates a ruling that may have discouraged companies from providing stock options to their rank-and-file workers.

The bill, supported by both major corporations and labor unions, reverses a February 1999 Labor Department letter ruling that stock options must count toward calculating overtime, something companies say is too expensive and bureaucratic to administer. The Senate last month passed the same bill on a 95-0 vote, and President Clinton has indicated he will sign it into law.

“We must make sure outdated laws don’t stifle innovation,” said Rep. Sam Johnson (R-Texas) and a co-sponsor of the bill.

The Labor Department rule resulted in confusion among employers, some of whom delayed granting options. Under the legislation passed Wednesday, Congress clarified that the value of stock options would not be included in determining overtime pay.

Under current law, a host of other types of benefits to workers--such as holiday bonuses, health insurance and thrift sharing plans--already are excluded from the overtime pay calculation.

The Labor Department’s stance on stock options was put forth in an advisory letter to one undisclosed company that wrote to the Cabinet-level agency seeking legal guidance on whether it could exclude stock options from the calculation of overtime pay. The Labor Department responded that the company could not do so and remain in compliance with the 1938 Fair Labor Standards Act, because the company’s plan required workers to remain employed with the company for a certain period of time.

Although the Labor Department’s advisory letter was related only to that company’s plan, it created a firestorm of concern among computer software and other companies that increasingly have extended stock options to nonexecutives. The agency’s stance suggested other companies that weren’t including stock options in figuring overtime pay could face enforcement actions.

At a March hearing before a House Education and Workforce subcommittee, GTE Corp.’s executive vice president for human resources, J. Randall MacDonald, told lawmakers that many corporations were suspending plans to expand their stock option plans because of the advisory letter. Among other things, he said, companies were concerned about increased liability if they incorrectly figured overtime pay.

One in three Fortune 200 companies in the U.S. gives stock options to nonexecutives, according to a 1998 study by Hewitt Associates, a human resources consulting firm. One in seven offers the options to all employees.