Options Expensing Caught in Proxy Crossfire

August 20, 2002 (PLANSPONSOR.com) - There was a distinct difference in perspective over a demand that National Semiconductor Corp. include a proxy vote about expensing stock options in its next proxy filing.

The Securities and Exchange Commission (SEC) sees the issue as nothing more than a “choice of accounting methods” that doesn’t deserve to be put before the National Semiconductor shareholders. The United Brotherhood of Carpenters Pension formally requested the SEC ruling.
Now, Calvert Asset Management Company, Inc. and Walden Asset Management have linked arms with the Carpenters Fund in protesting the SEC’s decision. Calvert and Walden will appeal.

They are expected to claim that executive compensation qualifies as “significant social and corporate policy,” rather than the day-to-day business operations, which are typically not subject to proxy votes

Accounting Outcome

The method companies use to account for their stock option grants has mushroomed into one of the most enduring controversies to come out of the Enron-WorldCom mess.

Shareholders’ groups and many lawmakers say investors deserve to get the most complete picture of the options’ cost to the company so corporations should be required to carry the options as business expenses.

In a number of cases involving major US corporations, executives received large blocks of stock, which they frequently cashed in before the share price plummeted due to the company’s impending financial collapse.