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The calculation of an employee’s average weekly wage does not include stock options issued to an employee for purposes of the Workers’ Compensation Act, the Pennsylvania Commonwealth Court has ruled in a case of first impression. Judges James Gardner Colins, Doris A. Smith-Ribner and James Flaherty sat on the panel in Scott v. Workers’ Compensation Appeal Board. Claimant Thomas Scott, a former employee of Crown Cork & Seal Co., was injured while on the job in May 1997. According to the opinion, Scott received temporary total disability benefits from April 22, 1997, to Jan. 9, 1999, except for the period between the last week of November 1998 and the first week of December 1998 when he received partial disability benefits. Scott’s benefits were ultimately suspended on Jan. 10, 1999. The workers’ compensation judge had determined that Scott’s average weekly wage did not include stock options offered by Crown Cork. Both Scott and Crown Cork filed cross-appeals to the WCJ’s order to the WCAB, which affirmed the WCJ’s decision. Scott argued that the WCAB erred in ruling that the employer-issued stock options were a fringe benefit and were therefore excluded from the calculation of Scott’s average weekly wage. Stock options are compensation, Scott asserted, and should therefore be included in the wage calculation. Section 309(e) of the Workers’ Compensation Act, 77 P.S. � 582 (e), includes board and lodging received from the employer, and gratuities reported to the U.S. Internal Revenue Service by or for the employee for federal income tax purposes in its definition of wages. However, fringe benefits including, but not limited to, employer payments for or contributions to a retirement, pension, health and welfare, life insurance and Social Security are excluded from the definition. Therefore, the commonwealth court said, stock options fall outside the scope of what is included in � 309(e)’s definition. “Although stock options are a popular incentive compensation device, they generally have no readily ascertainable value at the time they are granted and do not qualify under � 309(e) as an incentive payment earned on an actual basis,” Colins wrote. In Pennsylvania, the court said, the value of stock options is speculative until the option is exercised, citing the Pennsylvania Supreme Court’s decision in Marchlen v. Township of Mt. Lebanon. For income tax purposes, the commonwealth court said, the receipt of a stock option is generally not taxable to the employee as income because it has no fair market value. Instead, taxation is triggered by the transfer of the stock when the option is exercised. The court therefore determined that many factors can play into the value of stock options, and the commonwealth court agreed. “We conclude that … in workers’ compensation matters, stock options cannot be valued until the options are exercised, and thus are excludable as income for the purposes of determining a claimant’s average weekly wage,” Colins wrote. “There is no evidence of record indicating that claimant had exercised his stock options; therefore, the board properly affirmed the WCJ’s conclusion that unexercised stock options should be excluded from the calculation of the claimant’s average weekly wage.”

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