House Panel To Discuss Option Expensing Bill

The hearing by the House Committee on Capital Markets is being offered as a forum to review H.R. 1372, the Broad-Based Stock Option Plan Transparency Act.   Representative David Dreier (R-California), chairman of the House Rules Committee, and Representative Anna Eshoo (D-California)  introduced the bill last month that would prohibit the Securities and Exchange Commission (SEC) from enforcing a new stock-option rule until it studied the issue for three years. The bill also would require that the secretary of commerce spend a year studying the corporate and economic impact, according to aSmartPros Ltd report.

The Dreier-Eschoo proposal is in response to concerns regarding the Financial Accounting Standards Board’s (FASB) tentative decision to require companies to book stock options as an expense (See  FASB Says Yes to Option Expensing ).   Earlier this month, senators and technology executives lashed out at FASB chief Robert Herz for the board’s proposal, arguing the U.S. economy could suffer if companies are forced to expense options.   A similar bill was introduced last month in the Senate by Senators Barbara Boxer (D-California) and John Ensign (R-Nevada) (See  Ensign-Boxer Bill Would Stall Mandatory Option Expensing ).

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The two Senators echoed the sentiments of those against mandatory expensing.    Boxer said in a statement that the passage of option expensing proposals would be “bad for workers, bad for the economy, and bad for investors” and promised to introduce the Ensign-Boxer bill, which she said would, “send this whole matter to the SEC for review before the proposed rule goes into place and we are dealing with its unintended negative economic consequences.”  Ensign said he wants to ensure rank-and-file employees are not closed out of stock ownership, while improving corporate financial information to shareholders and investors. 

On the other hand, concerns about stock option accounting were elevated by recent corporate wrongdoing uncovered at Enron, WorldCom and others. Some argue that options entice executives to superficially increase stock prices in order to increase their personal worth (See  Investors Voice Support For Option Expensing ).