WASHINGTON — Senate Republican technology leaders admitted today it will be
difficult to stop the looming June deadline for corporations to begin fully
expensing employee stock options, a move the IT industry fears will dent
profits and hurt employee recruitment.
Currently companies are allowed to blur the potential bottom-line impact of
stock options on their financial statements in a footnote, but in the
aftermath of accounting scandals at companies such as Enron and WorldCom,
the Financial Accounting Standards Board (FASB) ruled corporations must set
an actual value on stock options.
The rule has drawn the widespread support of a number of industry sectors
with the notable exception of IT. Federal Reserve Chairman Alan Greenspan, Securities and Exchange Commission (SEC) Chairman William Donaldson and billionaire investor Warren Buffett have all endorsed the
proposal.
With the new standard accounting practice set to take effect in a little
more than 90 days, the tech industry has been aggressively lobbying Congress
to either override FASB or at least delay the implementation of the stock
option expensing rule.
Last year, the U.S. House of Representatives voted to
mandate the expensing of stock options granted to the CEO and the next four
most highly compensated officers of a company but exempted the expensing of
stock options for all other employees.
Comparable legislation in the Senate never came to a vote, and members of the
Senate Republican High Tech Task Force predicted Wednesday the prospects for
action before the June 15 deadline are no better this time around.
“It will be very difficult,” Sen. George Allen (R-Va.) said. Sen. Richard Burr (R-N.C.) added that any vote to overturn the FASB rule would be a
“close one and a tough one.”
The task force is a 14-member panel created in 1999 to advise Republicans on
technology issues. According to the group’s policy platform, the FASB rule
will “lead to the destruction of broad-based employee ownership and will
impact U.S. global competitiveness.”
The group now seeks to delay the rule “until field testing can occur and
valuation models can be improved or fundamentally changed.”
“We’re going to fight as hard as we can,” Allen said. “Our group thinks it
is a great idea to ‘incent’ employees beyond a paycheck.”
Sen. John Ensign, chairman of the task force, said the group would be
meeting with the SEC in the next few days to discuss the issue.
Stock options have long been a popular form of compensation for
tech-industry employees, particularly for start-ups with little cash to
attract talent. TechNet, the 150-member exclusive lobbying network of
technology CEOs and senior partners, was in Washington
this week with the FASB rule near the top of its agenda.
Venture capitalist John Doerr, a co-founder of TechNet, said Tuesday at a
media briefing, “When it comes to the future of innovation, the most
important thing we can get right is to protect broad-based employee
ownership in the form of stock options.”
According to Doerr, nearly 14 million workers receive stock options, and 80
percent of them earn less than $75,000.
“For those policy makers who felt that expensing, in effect, eliminating
stock options, would deal with executive compensation abuse or somehow had
something to do with the scumbags at WorldCom, Tyco and Enron, they are
mistaken,” added Doerr. “They are throwing out the baby with the bathwater.”
Doerr added, “In recent days, for example, Time Warner, Pfizer and others
have announced they are no longer going to use this powerful incentive to
motivate their workforces. Pfizer in fact said no one will be granted stock
options in the future except for the most senior executives.”
