Options Expensing Takes a Hit
Heavily lobbied by Silicon Valley, the House approved legislation Tuesday that would block an accounting rule requiring companies to count on their books the cost of stock options they gave their employees.
The measure passed on a bipartisan vote of 312 to 111, underscoring the strong push to scuttle a regulation the high-tech industry said threatened a popular form of compensation.
A similar measure is sponsored by nearly one-fourth of the Senate. But the measure is opposed by Sens. Richard C. Shelby (R-Ala.) and Paul S. Sarbanes (D-Md.), the chairman and top-ranking Democrat of the Senate Banking Committee.
The two senators don’t want Congress to intervene with the independent Financial Accounting Standards Board, which this year proposed requiring companies to deduct the cost of option grants from earnings.
“Congress should let the FASB experts do their job without political interference,” Shelby said after the House vote.
Sen. Barbara Boxer (D-Calif.), a sponsor of the Senate bill, said she remained hopeful.
Senate critics of the accounting rule are trying to attach a measure blocking it to a must-pass spending bill. Sen. Mike Enzi of Wyoming, an accountant whose views on accounting issues carry weight with fellow Republicans, said the House action might persuade the accounting board to delay the new rule.
But Katherine Scheeler, financial services analyst for Schwab Washington Research Group, said the bill probably wouldn’t move in the Senate.
“The Senate is where House bills go to die, and this one is no exception,” she said.
The bill’s approval in the House came two years after Congress, spurred by a string of corporate scandals, passed a law aimed at ensuring that accounting of corporate bottom lines was free of outside influence. The issue has created unusual alliances among political adversaries; both House Majority Leader Tom DeLay (R-Texas) and Minority Leader Nancy Pelosi (D-San Francisco) supported the bill.
The bill would delay the rule for a year while the Commerce and Labor departments studied its likely economic effect. Instead, companies would have to expense options granted to their five highest-paid executives, although small businesses would be exempt and newly public companies could delay expensing for their top executives for three years.
The measure would also require public companies to include more detailed information, in clear language, on stock options in their public financial reports.
About 14 million Americans hold stock options, which give people the right to buy shares at a fixed price over a fixed period. Option holders can profit if the value of the company’s stock rises above the option price.
High-tech companies say broad-based employee stock options are crucial to attracting and retaining talent. Because they give employees an added incentive to help their employers succeed, the companies say, they have been a driving force behind the success of many ventures.
Expensing, according to the companies, would reduce company earnings and hurt start-ups.
Rep. David Dreier (R-San Dimas) called the measure “one of the most important pro-economic growth, pro-employee ownership bills we will consider in this Congress.”
California Democrats split 22 for the bill and 11 against. The 11 were Howard L. Berman of North Hollywood; Lois Capps of Santa Barbara; Barbara Lee of Oakland; Robert T. Matsui of Sacramento; Grace F. Napolitano of Norwalk; Lucille Roybal-Allard of East Los Angeles; Linda T. Sanchez of Lakewood; Brad Sherman of Sherman Oaks; Pete Stark of Hayward; Maxine Waters of Los Angeles; and Henry A. Waxman of Los Angeles.
Republicans voted 18 to 2 in favor, with “no” votes from Mary Bono of Palm Springs and Dana Rohrabacher of Huntington Beach.
