[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2822 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2822

 To prevent publicly traded corporations from issuing stock options to 
    top management in a manner that is detrimental to the long-term 
                       interests of shareholders.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 30, 2002

   Mr. Wyden introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
 To prevent publicly traded corporations from issuing stock options to 
    top management in a manner that is detrimental to the long-term 
                       interests of shareholders.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Prevention of Stock Option Abuse 
Act''.

SEC. 2. CONGRESSIONAL FINDINGS AND PURPOSE.

    (a) Findings.--Congress finds that--
            (1) granting stock options to corporate directors and 
        executive officers can promote the interests of shareholders, 
        by enabling corporations to attract and retain top managerial 
        talent and by giving management a strong personal interest in 
        improving the corporation's performance; and
            (2) recent corporate accounting scandals suggest that, in 
        some instances, grants of stock options to directors and 
        executive officers may have failed to serve their intended 
        purpose of aligning the interests of management with the long-
        term interests of the corporation. Instead, stock options 
        grants in some instances may have created perverse incentives 
        for directors and executive officers to pump up the 
        corporation's short term share price, without regard to the 
        corporation's long-term financial health.
    (b) Purpose.--The purposes of this Act are--
            (1) to increase shareholder input and oversight with 
        respect to stock option compensation plans by requiring 
        shareholder approval;
            (2) to ensure that stock options provide incentives for 
        corporate directors and executive officers to act in the best 
        long term interests of their corporations, rather than to 
        stimulate short term run-ups in the stock price, by 
        establishing substantial vesting periods for options and 
        holding periods for stock shares; and
            (3) to improve the transparency of stock option grants to 
        corporate directors and executive officers, by providing better 
        and more frequent information to shareholders and investors.

SEC. 3. RULEMAKING.

    Not later than 180 days after the date of enactment of this Act, 
the Securities and Exchange Commission shall issue final rules that--
            (1) require any publicly traded corporation to obtain prior 
        shareholder approval of stock option compensation plans;
            (2) require that any stock options issued by a publicly 
        traded corporation to any of its directors or executive 
        officers have a vesting period of not less than 5 years;
            (3) prohibit any person who acquires stock, whether through 
        the exercise of stock options or by any other means, in a 
        publicly traded corporation for which such person serves as a 
        director or executive officer from selling--
                    (A) any of such stock until 180 days after the date 
                of acquisition;
                    (B) more than 25 percent of such stock until 3 
                years after the date of acquisition; and
                    (C) more than 75 percent of such stock until 180 
                days after such person ceases to serve as a director or 
                executive officer of such corporation; and
            (4) require every publicly traded corporation to include, 
        in each regular quarterly filing to the Securities and Exchange 
        Commission, a separately headed section or subsection on stock 
        options that includes--
                    (A) information on the total quantity of 
                outstanding stock options held by directors, executive 
                officers, and other employees of such corporation;
                    (B) information on the number, terms, and status of 
                stock options that have been issued or that the 
                corporation has committed to issue to individual 
                directors and executive officers of such corporation; 
                and
                    (C) such other information as the Securities and 
                Exchange Commission determines may be useful in 
                ensuring that investors fully understand the potential 
                impact of the corporation's stock option practices on 
                shareholder value and on the incentives of corporate 
                directors, executive officers, and employees.
                                 <all>