Expensing of Options Debated in Senate
Opponents of mandatory stock options expensing warned lawmakers Tuesday of dire consequences to the economy if a plan to require companies to deduct the value of employee options from their earnings is approved.
Sen. Barbara Boxer (D-Calif.) testified at a Senate subcommittee hearing that many of her Silicon Valley constituents feared that the proposed rule change would cause fast-growing technology firms to scale back their awarding of options, thereby depriving rank-and-file workers of what might be their best path to prosperity.
Members of the Financial Accounting Standards Board, the private, industry-based board that proposed the new rule, “refuse to look up from their eyeshades and see the big picture,” Boxer said.
Sen. Mike Enzi (R-Wyo.) said the complex mathematical procedure for valuing the options would place a disproportionate burden on small business.
But others who testified, including former Federal Reserve Chairman Paul A. Volcker, said that if Congress intervened to block FASB, it could encourage similar “politicization” of standards-setting overseas and endanger progress toward a uniform set of international accounting rules.
Boxer and Enzi support legislation -- similar versions of which have been introduced in the House and Senate -- that would require companies to expense only those options awarded to their five highest-ranking executives. The bills also would bar the rule change from taking effect until the Securities and Exchange Commission had completed a study of the likely economic effect.
Boxer acknowledged that there wasn’t “much steam” behind the Senate bill but said it could gain momentum if the House bill passed.
The House legislation’s chances seemed to improve Tuesday when Rep. Michael G. Oxley (R-Ohio), chairman of the key House Financial Services Committee, stopped just short of endorsing it in an interview with Reuters.
“You’ve got an unelected body called FASB that nobody has ever heard of that could very well make decisions that have an enormous impact on our overall economic picture,” Oxley said. “We would be, in my estimation, foolhardy to sit back and simply allow it to happen just because some people think this is a real silver bullet in dealing with corporate governance.”
The remarks were a departure for Oxley, who at a March luncheon at the National Press Club had said FASB ought to be left alone “unless they make some kind of egregious over-reach.”
Tuesday’s hearing by the Senate subcommittee on financial management, the budget and international security was chaired by Sen. Peter Fitzgerald (R-Ill.), who gave an opening statement strongly opposing what he called “political interference” with FASB.
Saying that blocking FASB’s proposed rule could set a dangerous precedent, Fitzgerald raised the specter of Congress overturning Food and Drug Administration rulings to enable certain pharmaceuticals to come to market.
Another hearing is scheduled in the House today before a subcommittee chaired by Rep. Richard H. Baker (R-La.), chief sponsor of the House bill to scale back the proposed rule change.
