Sen. Ensign Introduces Bill to Impose Moratorium on Mandating Stock Option Expensing

May 1, 2003. Sen. John Ensign (R-NV), Sen. Barbara Boxer (D-CA), and other Senators introduced S 979, the "Broad-Based Stock Option Plan Transparency Act of 2003''.

The bill is a reaction to a tentative decision of the Financial Accounting Standards Board's (FASB) in April to mandate the expensing of stock options. The bill would place a three year moratorium on the mandatory expensing of stock options. Specifically, it would temporarily prevent the Securities and Exchange Commission's SEC's from recognizing any accounting standards related to the treatment of stock options that it did not recognize on April 1, 2003. The bill would further require the SEC to adopt rules requiring companies to report information regarding their stock option plans. And, after three years, the SEC would be required to prepare a report.

The bill recites in its findings that "innovation and entrepreneurship, particularly in the high technology industry, helped propel the economic growth of the 1990s, and will continue to be the essential building blocks of economic growth in the 21st century". It further states that "broad-based employee stock option plans enable entrepreneurs and corporations to attract quality workers, to incentivize worker innovation, and to stimulate productivity, which in turn increase shareholder value".

Sen. Ensign (at right) spoke in support of the bill in the Senate. He said that "This issue was brought to my attention by a couple hundred chief executive officers and leaders in the high-tech world. This is their No. 1 issue because, when they are properly structured, stock options are valuable incentives for productivity and growth. They also help startup companies recruit and retain workers--an essential tool in a struggling economy. I think it is absolutely ludicrous that we would risk destroying growth when there isn't even a workable model available to accurately expense stock options. Not only is the plan wrong, it is not doable." See, Congressional Record, May 1, 2003, at page S5670.

Sen. Dianne Feinstein (D-CA) stated in the Senate that "It is important that we do not react to the corporate scandals of last year by stifling this vital tool for economic growth. It would be bad for the economy, bad for workers in this country, and bad for potential investors." See, Congressional Record, May 1, 2003, at page S5671.

The bill would do three things. First, the bill would require the SEC to adopt rules requiring that companies that are required to file periodic reports with the SEC also submit "detailed information regarding stock option plans, stock purchase plans, and other arrangements involving an employee acquisition of an equity interest in the company, particularly with respect to the dilutive effect of such plans".

Second, the bill would require the SEC to conduct a study during the three year period following the adoption of rules, and then prepare a report on "the effectiveness of the enhanced disclosures". The bill also requires a study by the Department of Commerce.

Third, the bill would impose a moratorium. It provides that until sixty days after the completion of its report, the SEC "shall not recognize as generally accepted accounting principles for purposes of enforcing the securities laws any accounting standards related to the treatment of stock options that the Commission did not recognize for that purpose before April 1, 2003."

The bill was referred to the Senate Banking Committee. The other original cosponsors of the bill are Sen. Maria Cantwell (D-WA), Sen. Mike Crapo (R-ID), Sen. George Allen (R-VA), Sen. Patty Murray (D-WA), Sen. Dianne Feinstein (D-CA), Sen. Harry Reid (D-NV), Sen. Wayne Allard (R-CO), Sen. Conrad Burns (R-MT), Sen. John Warner (R-VA), Sen. Bob Bennett (R-UT), Sen. Gordon Smith (R-OR), Sen. Debbie Stabenow (D-MI), and Sen. Norm Coleman (R-MN).