Administration November 1, 2005

Option Expensing Opponents Vocalize Complaints

January 23, 2004 (PLANSPONSOR.com) - Opponents to mandatory stock option expensing have come out of the woodwork, claiming such a move would be devastating to a growing national economy.

Reported by

Eric Hazard

Citizens Against Government Waste (CAGW), in conjunction with other organizations, sent a letter to US Securities and Exchange Commission (SEC) Chairman William Donaldson urging opposition to mandatory stock option expensing. The group claims imposing such a move would do harm to a variety of industries in the US, particularly the technologyindustry, according to a news release.

“Mandatory expensing would be a blow to an economy that is finally on anupswing after several down years,” CAGW President Tom Schatz said in the release. “Theadministration has worked hard over the last three years to create jobgrowth. A decision to impose mandatory expensing of stock options would be ahuge stepbackward for US companies, especially small businesses, trying torecruitand retain top-level talent.”

CAGW goes on to say that mandatory option expensing would only end up hurting the very people it is suppose to help, ordinary workers. As evidence of this contention, the group points to studies showing the concentration of stock option grants would grow larger among executives and dry up among lower level workers.

“By imposing such a regulation, the FASB would simply be placing anotherunneeded burden on companies in an effort to over-compensate for lastsummer’scorporate scandals,” Schatz continued. “Real reforms are needed toincreasecorporate governance. Forcing companies to expense stock options wouldonlyhurt ordinary workers who benefit not only financially, but the feelingsofentitlement and ownership in the work they do.”

Other signatories of the letter include Grover Norquist, Americans for Tax Reform president, Karen Kerrigan, Small Business Survival Committee chairman and Women Enterprises, Inc. president and CEO, John Berthoud, National Taxpayers Union president and Chuck Muth, Citizen Outreach president and CEO.

Companies currently are required to include information about stock options only in the footnotes of financial statements, though the Financial Accounting Standards Board (FASB) appears poised to require that options be expensed (See FASB: Option Expensing Begins in 2005 ). Opponents of mandatory expensing have said it will mean the end of broad-based equity plans, that it is impossible to accurately value options since formulas being proposed are overly complex, and that current earnings per share disclosure rules are adequate (SeeBlack-Scholes Overvalues Stock Options).