California lawmakers friendly to high-tech industries pushed Tuesday to delay a requirement that companies count options as expenses that count against their bottom line.
The head of a board that sets standards for corporate accounting said that by proposing a three-year hiatus before such a requirement is imposed, the lawmakers were intervening improperly in the board's work.
The spectacle of executives at Enron and other foundering companies cashing out millions of dollars worth of company stock before the big corporations collapsed — while employees lost their jobs and savings and investors got burned — has animated the stock-options debate.
Proponents of mandatory counting of stock options as an expense, including Federal Reserve chairman Alan Greenspan and multibillionaire investor Warren Buffett, argue that without it investors will continue to get misleading information on companies' financial performances. Proponents of the rule change say awarding executives options that can be sold within a short time gives them incentive to pump up the stock price recklessly without regard to the company's long-term future.
But business interests, especially high-tech companies that are generous campaign donors to both parties, stiffly oppose such a change. And their allies in Congress are predicting dire consequences for high-tech, biotechnology and startup companies, and the U.S. economy, if the rule is enforced.
"Rank-and-file employees would be the ones who lose out," Rep. Anna Eshoo, a California Democrat whose district embraces Silicon Valley, testified at a House hearing.
"Broad-based stock option plans have turned employees into corporate partners by tying the interest of the employee together with the company and its shareholders," Eshoo told the House Financial Services subcommittee on capital markets.
Eshoo and Rep. David Dreier, R-Calif., have proposed legislation that would stall a new expense requirement for stock options for at least three years for further government studies. Their bill would require only enhanced disclosure by companies of stock option information.
The Financial Accounting Standards Board, an industry-funded group, tentatively decided recently to change accounting rules to force companies to treat stock options as an expense. Current rules give companies the choice of doing so or not: General Electric Co., General Motors and Coca-Cola Co. are among those that do. A decade ago, the board proposed the change it is now considering but backed away in the face of intense political pressure.
A three-year delay as proposed in the bill "would unduly intervene in the board's independent, objective and open process to make unbiased decisions," board Chairman Robert Herz told the subcommittee. "Such intervention would be in direct conflict with the expressed needs and demands of many investors."
Herz has said he has heard nothing to make him change his mind that companies must somehow include stock options as compensation that shaves company profits.
Lawmakers on the panel said they were undecided.