Zeev's Turnips Patch-No Politics (ZEEV)

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*** House Votes to Block Stock Option Mandate ***

Well, no surprises here! <sigh>


House Votes to Block Stock Option Mandate
By MARCY GORDON, AP Business Writer

WASHINGTON - The House voted Tuesday to block a rule that would require companies to count stock options against their profits, after a party-splitting debate over corporate accountability, economic growth and jobs.

The vote was 312-111 for a bill overriding a proposal by the rule-setting board for accounting. The board wanted to force publicly traded companies to record as an expense all forms of share-based payments to employees, including stock options.

The bill was backed by House leaders of both parties — a rare occurrence in recent months. However, there was dissent among both the Republican and Democratic rank and file. Similar legislation has stalled in the Senate, where Banking Committee Chairman Richard Shelby, R-Ala., opposes it.

The House-passed measure, sponsored by Reps. Richard Baker, R-La., and Anna Eshoo, D-Calif., would limit required expensing of options to those owned by a corporation's top five executives. It also would allow newly public companies to delay expensing for top executives in the first three years.

The rule change proposed in March by the Financial Accounting Standards Board could dramatically reduce the reported earnings of many big companies, particularly in the high-tech industry where stock options have been popular.

In House debate, supporters of the legislation insisted a mandate to count options against the bottom line would complicate income statements, discourage startup companies and hurt the economy by stifling future innovation.

"It would have a negative, real-world policy impact" and "choke off job growth," said Rep. Pete Sessions, R-Texas.

Proponents also said it was impossible to determine the value of options.

The FASB proposal answered the call for accurate financial statements that came after a string of corporate scandals, starting with Enron.

But supporters of the bill maintained Tuesday that millions of rank-and-file employees would be unfairly punished for the abuses of a few top executives who manipulated earnings.

The legislation has sliced through House committees and across party lines in recent months, propelled by lobbying by deep-pocketed high-tech companies eager to favor friendly lawmakers in an election year.

Companies now need not record the cost of options as an expense on their financial statements, though hundreds have begun to do so voluntarily. Instead, they must only include the potential cost in a footnote, making it difficult for investors to gauge their effect on earnings.

Not requiring options to be expensed "runs the grave risk of inflating a company's profits and misleading investors," warned Rep. Alcee Hastings, D-Fla.

Across the aisle, Rep. Cliff Stearns, a Florida Republican who heads a subcommittee dealing with financial issues, chided bill supporters for disregarding advice from "the most famous investor in the country" — Warren Buffett (news - web sites).

Some blame stock options for fueling recent corporate abuses. They say the options entice executives to manipulate earnings to pump up stock prices and then sell their lucrative personal holdings. Still, options remain a popular compensation tool to help motivate employees, who can buy shares at a fixed price and sell at a profit if the company's stock rises.

Proponents of mandatory expensing of options include Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites), Securities and Exchange Commission (news - web sites) Chairman William Donaldson, Buffett and the Big Four accounting firms. Institutional Shareholder Services, a group that advises big investors such as pension funds and mutual funds, has been particularly vocal in urging the FASB proposal.

Arrayed against the mandatory expensing are members of a lobbying coalition that includes Agilent Technologies, Cisco Systems, Coors Brewing, Dell, General Mills, Intel and Sun Microsystems. Also opposed are the Nasdaq Stock Market, home to numerous big high-tech companies; the National Association of Manufacturers (news - web sites); the U.S. Chamber of Commerce (news - web sites), and the Business Roundtable, which represents chief executives of the largest U.S. corporations.

If the FASB proposal is approved, it would be effective Dec. 15.

FASB Chairman Robert Herz said last month the panel may delay a final rule because corporate America already is facing deadlines to implement other new regulations enacted in 2002 in response to the scandals. Donald Nicolaisen, the SEC's chief accountant, has said FASB should consider delaying the rule to 2006.

Bill is H.R. 3574.

http://news.yahoo.com/news?tmpl=story&u=/ap/20040720/ap_on_go_co/stock_options_battle