Senators Join Options Plan Battle

The war over expensing employee stock options took an unexpected turn this week, with dozens of senators urging the Securities and Exchange Commission to dedicate more time to the issue and take a closer look at the Financial Accounting Standards Board's proposal. The senators' letter to SEC Chairman William Donaldson is the result of an intense lobbying campaign by opponents, mostly from the technology industry, of the FASB standard.

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The war over expensing employee stock options has taken an unexpected turn. Dozens of senators are urging the Securities and Exchange Commission to dedicate more time to the issue and take a closer look at the Financial Accounting Standards Board’s proposal. “At a minimum, the SEC should: conduct comprehensive, cross-industry field testing of the various valuation proposals that have been submitted to FASB,” Senate Republican Conference Chairman Sen. Rick Santorum, R-Pa., Sen. Mike Enzi, R-Wyo., and 32 other senators wrote in a Tuesday letter to William Donaldson, chairman of the SEC. The letter, just one of four sent to the SEC chairman from a total of 52 senators in the past week, is the result of an intense lobbying campaign by opponents, mostly from the technology industry, of the FASB standard. More than any other industry, tech companies rely on options to attract and retain employees. Under the proposed rules, however, that practice can impair the recorded earnings at the companies, limiting, or in the worst case, eliminating, the practice. Even Senate Majority Leader Bill Frist, R-Tenn., stepped into the fray. In a Sept. 29 letter, Frist said he is also concerned about the controversy over valuation and suggested the SEC should “… conduct appropriate testing and determine the best method or methods to value employee stock options.” Appropriations Committee Chairman Ted Stevens, R-Alaska, said earlier this week he would support a study. This is a sharp departure from just two weeks ago, when just a handful of senators supported blunting the FASB rules. Earlier this year, the House passed the Stock Option Accounting Reform Act by an overwhelming majority. But Senate Banking Committee Chairman Richard Shelby, R-Ala., who is adamantly opposed to interfering with FASB, said he would do everything possible to make sure the bill would never make it out of his committee. The measure requires expensing options only for a company’s top five executives and exempts startups. All other employee options would be free from expensing. Donaldson also warned Congress in an Aug. 19 letter not to interfere with FASB’s standard-setting process. The board is expected to finalize the options-expensing rules before the end of the year. Earlier this week, Federal Reserve Chairman Alan Greenspan argued that the accuracy of financial statements could be in jeopardy if lawmakers intervene with the accounting standards process. However, the bipartisan contingent, which includes the leadership from both parties and most of the members of the Appropriations Committee and the Banking Committee, have expressed concern about the proposal. “This speaks volumes about the flaws with the FASB rule,” Enzi said. Copyright �2004 TDD, LLC. All rights reserved.

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