Option Expensing Bill Set for May 12 Markup

The move by the Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises, part of the Financial Services Committee, chaired by the sponsor of the stock option bill – HR 3574 – Richard Baker (R – Louisiana) to set a markup date will allow amendments to be attached to the bill.   Additionally, the mark-up session will represent the first time Congressional votes would be recorded on the bill.  

As the language of the bill current reads, only stock options granted to a company’s top five executives would be required to be counted as an expense on corporate financial statements.   This would be in contradiction to the Exposure Draft – Share-Based Payment, an Amendment of FASB Statements No. 123 and 95 – issued by the nation’s accounting rulemakers, the Financial Accounting Standards Board (FASB), in March requiring stock options to be counted as an expense on the grant date for all employees (See  FASB Hands Down Option Expensing Proposal).  

Support for the measure has been broad and bipartisan, with107 cosponsors, includingHouse Minority Leader Nancy Pelosi (D-California) (See Pelosi Backs Executive Option Expensing Bill ).   Further, similar legislation has been proposed by Senator Michael Enzi (R- Wyo ming), which has garnered support from 16 co-sponsors.  

Critics of FASB’s proposal, which are heavily concentrated among the high-tech and venture capital firms, argue mandatory stock option expensing would devastate their current compensation practices.   However, supporters of mandatory stock option expensing blame stock options for inflating corporate earnings by tempting executives to pump up stock prices.  In fact, FASB has considered requiring their expensing before, but backed away from the idea in 1994 under pressure from the Senate.

Trying to prevent encroachments from U.S. lawmakers on the accounting rulemaking policy, a host of Washington insiders, includingRichard Shelby (R-Alabama) and Paul Sarbanes (D-Maryland), have urged Congress to drop legislative attempts at rerouting the option expensing proposals.   This group maintains FASB should remain an independent rulemaking body free from Congressional influence.