CalPERS Debates Joining Accounting Reform Fray

April 16, 2002 ( - The California Public Employees' Retirement System (CalPERS), a longtime corporate governance champion, is debating joining a wing of the post-Enron accounting reform campaign that is seeking changes to the way stock options are treated on the balance sheet.

The treatment of these instruments, which allow a grantee to buy a stock in the future for a set price, hits CalPERS’ agenda at the same time that a bill being considered in the US Senate requires businesses to report the options’ cost on their income statements.

If they don’t report the cost, the Senate bill says they will forfeit the right to use these costs as tax deductions.

The campaign to change the rules to require stock options to be treated as expenses, was given a boost after an investigation of irregularities at Enron revealed that executives had been awarded lucrative options packages.

CalPERS believes that retooling the rules would rein in corporate executives who might seek to boost the share price prior to cashing in their options, according to a Reuters report .

The CalPERS investment committee asked its staff, which has shown support for the change, to present their ideas for accounting reform.

A final decision on whether the $150-billion pension fund will formally lobby for stock option reform is not expected for several months.

However, reform opponents argue that further stock options regulation would discourage businesses from offering stock options, a powerful attraction and retention tool.
But the CalPERS investment committee, which includes both the state treasurer and controller, voted to delay any decision until staff put forward their own solutions, according to Reuters.