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Congress Votes to Keep Options Off P&L
Tuesday June 15, 3:48 pm ET
By Susan Cornwell and Kevin Drawbaugh


WASHINGTON (Reuters) - A U.S. congressional committee on Tuesday voted to curtail a move by America's independent accounting standards setter to require that companies count stock options as business expenses.
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The House of Representatives Financial Services Committee approved 45-13 a bill to restrict any option expensing standard from the Financial Accounting Standards Board to options granted to the top five officers of a company.

The bill would also delay implementing any standard for a year, until completion of an economic impact study by the departments of Labor and Commerce.

FASB recently proposed that options should be expensed and is expected to issue a final rule by the end of this year.

FASB considered requiring options expensing before, but backed away in 1994 under pressure from the Senate.

Headed next for a vote in the full House, the bill faces an uphill battle in the Senate, where some lawmakers have said Congress should not meddle with FASB, a private panel based in Connecticut that oversees U.S. accounting standards.

The bill's sponsor, Rep. Richard Baker, said the measure was aimed at protecting broad-based stock option plans that start-up companies often use to attract workers. These plans might simply dry up if they had to be expensed, he said.

"We're going to let a job-creation tool be continued," Baker, a Louisiana Republican, declared.

Baker argued that requiring the expensing of options issued to a company's top five officers would address concerns about the abuse of option grants by company bigwigs.

But opponents said Congress should not be getting into the business of setting accounting standards, especially just two years after voting to increase FASB's independence in the Sarbanes-Oxley Act cracking down on corporate corruption.

By approving the Baker bill, "we set the precedent of our overruling the FASB. I think that is a mistake," said Massachusetts Rep. Barney Frank, a Democrat.

REGULATORS DEFEND FASB

Republican Rep. Paul Gillmor of Ohio, another opponent of the Baker bill, noted that financial regulators from Federal Reserve Chairman Alan Greenspan to Securities and Exchange Commission Chairman William Donaldson had suggested that Congress should stay out of accounting rule-making.

U.S. companies presently don't have to treat stock options as expenses like salaries or bonuses on their income statements. Only footnote disclosures are required.

Forcing companies to expense options would give investors a clearer picture of profitability and executive pay, according to supporters of the FASB proposal.

But expensing is opposed by high-tech companies that issue options liberally. They argue, like Baker, that expensing would cause fewer options to be issued.

"We think it's a significant step toward preserving broad-based employee stock options, particularly for rank and file workers," said Bill Calder, a spokesman for Intel Corp. (NasdaqNM:INTC - News), the world's largest chip maker, after the vote.

"Obviously we've got to continue to work the issue in the Senate. We've got an uphill battle there," he said.

Baker's bill, introduced last November, is co-sponsored by more than 100 other lawmakers from both parties. Baker hopes for a floor vote before the August recess.

A similar bill has been filed in the Senate by Wyoming Republican Sen. Michael Enzi. But Alabama Republican Sen. Richard Shelby, who chairs the Banking Committee, said earlier this month that FASB should be left to determine accounting standards free of political interference from Congress.

http://biz.yahoo.com/rb/040615/congress_stockoptions_3.html