[Congressional Record Volume 146, Number 53 (Wednesday, May 3, 2000)]
[House]
[Pages H2437-H2449]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    WORKER ECONOMIC OPPORTUNITY ACT

  Mr. GOODLING. Mr. Speaker, I move to suspend the rules and pass the 
Senate bill (S. 2323) to amend the Fair Labor Standards Act of 1938 to 
clarify the treatment of stock options under the Act.
  The Clerk read as follows:

                                S. 2323

       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 ``Worker Economic Opportunity 
     Act''.

     SEC. 2. AMENDMENTS TO THE FAIR LABOR STANDARDS ACT OF 1938.

       (a) Exclusion From Regular Rate.--Section 7(e) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 207(e)) is amended--
       (1) in paragraph (6), by striking ``or'' at the end;
       (2) in paragraph (7), by striking the period and inserting 
     ``; or''; and
       (3) by adding at the end the following:
       ``(8) any value or income derived from employer-provided 
     grants or rights provided pursuant to a stock option, stock 
     appreciation right, or bona fide employee stock purchase 
     program which is not otherwise excludable under any of 
     paragraphs (1) through (7) if--
       ``(A) grants are made pursuant to a program, the terms and 
     conditions of which are communicated to participating 
     employees either at the beginning of the employee's 
     participation in the program or at the time of the grant;
       ``(B) in the case of stock options and stock appreciation 
     rights, the grant or right cannot be exercisable for a period 
     of at least 6 months after the time of grant (except that 
     grants or rights may become exercisable because of an 
     employee's death, disability, retirement, or a change in 
     corporate ownership, or other circumstances permitted by 
     regulation), and the exercise price is at least 85 percent of 
     the fair market value of the stock at the time of grant;
       ``(C) exercise of any grant or right is voluntary; and
       ``(D) any determinations regarding the award of, and the 
     amount of, employer-provided grants or rights that are based 
     on performance are--
       ``(i) made based upon meeting previously established 
     performance criteria (which may include hours of work, 
     efficiency, or productivity) of any business unit consisting 
     of at least 10 employees or of a facility, except that, any 
     determinations may be based on length of service or minimum 
     schedule of hours or days of work; or
       ``(ii) made based upon the past performance (which may 
     include any criteria) of one or more employees in a given 
     period so long as the determination is in the sole discretion 
     of the employer and not pursuant to any prior contract.''.
       (b) Extra Compensation.--Section 7(h) of the Fair Labor 
     Standards Act of 1938 (29 U.S.C. 207(h)) is amended--
       (1) by striking ``Extra'' and inserting the following:
       ``(2) Extra''; and
       (2) by inserting after the subsection designation the 
     following:
       ``(1) Except as provided in paragraph (2), sums excluded 
     from the regular rate pursuant to subsection (e) shall not be 
     creditable toward wages required under section 6 or overtime 
     compensation required under this section.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date that is 90 days after the date 
     of enactment of this Act.
       (d) Liability of Employers.--No employer shall be liable 
     under the Fair Labor Standards Act of 1938 for any failure to 
     include in an employee's regular rate (as defined for 
     purposes of such Act) any income or value derived from 
     employer-provided grants or rights obtained pursuant to any 
     stock option, stock appreciation right, or employee stock 
     purchase program if--
       (1) the grants or rights were obtained before the effective 
     date described in subsection (c);
       (2) the grants or rights were obtained within the 12-month 
     period beginning on the effective date described in 
     subsection (c), so long as such program was in existence on 
     the date of enactment of this Act and will require 
     shareholder approval to modify such program to comply with 
     section 7(e)(8) of the Fair Labor Standards Act of 1938 (as 
     added by the amendments made by subsection (a)); or
       (3) such program is provided under a collective bargaining 
     agreement that is in effect on the effective date described 
     in subsection (c).
       (e) Regulations.--The Secretary of Labor may promulgate 
     such regulations as may be necessary to carry out the 
     amendments made by this Act.

  The SPEAKER pro tempore (Mr. Quinn). Pursuant to the rule, the 
gentleman from Pennsylvania (Mr. Goodling) and the gentleman from New 
York (Mr. Owens) each will control 20 minutes.
  The Chair recognizes the gentleman from Pennsylvania (Mr. Goodling).
  Mr. GOODLING. Mr. Speaker, I yield myself 2 minutes.
  Mr. Speaker, I rise in strong support of S. 2323, the Worker Economic 
Opportunity Act. The Department of Labor, in a recent opinion letter, 
has jeopardized a successful and popular new trend in employment, and 
they did it not because of any fault of theirs but because they 
interpreted the Labor Standards Act of 1938, which is what I have said 
over and over again, year after year, we are trying to run businesses, 
labor and management, based on rules and regulations that were written 
back in the 1930s, when it was a manufacturing economy only and men 
only. We cannot do that in the 21st century.
  Well, of course, if they had followed through, we would have 
eliminated the very popular stock option for hourly employees.
  I want to thank the gentleman from New York (Mr. Owens) and the 
gentleman from Indiana (Mr. Roemer) and the gentleman from Wisconsin 
(Mr. Kind), among others, for helping us develop the bipartisan 
resolution. I want to certainly thank the gentleman from California 
(Mr. Cunningham), who has worked tirelessly to help bring about this 
resolution, as well as our subcommittee chair, the gentleman from North 
Carolina (Mr. Ballenger).
  The Worker Economic Opportunity Act reflects a consensus reached 
among the bill's chief sponsors in the House and the Senate committees 
of jurisdiction and the Department of Labor. The other body passed it 
95 to nothing; and to further explain the consensus we have reached, I 
am going to include into the Record a statement of legislative intent 
which is substantially identical to what was the legislative intent 
presented in the other body by Senators McConnell, Dodd, Jeffords, and 
Enzi.
  I urge my colleagues to vote for the Worker Economic Opportunity Act.

Statement of Legislative Intent Regarding S. 2323, the Worker Economic 
                            Opportunity Act


                      i. introduction and purpose

       The purpose of S. 2323, the Worker Economic Opportunity 
     Act, is to allow employees who are eligible for overtime pay 
     to continue to share in workplace benefits that involve their 
     employer's stock or similar equity-based benefits. More 
     working Americans are receiving stock options or 
     opportunities to purchase stock than ever before. The Worker 
     Economic Opportunity Act updates the Fair Labor Standards Act 
     to ensure that rank-and-file employees and management can 
     share in their employer's economic well being in the same 
     manner.
       Employers have provided stock and equity-based benefits to 
     upper level management for decades. However, it is only 
     recently that employers have begun to offer these programs in 
     a broad-based manner to non-exempt employees. Historically, 
     most employees had little contact with employer-provided 
     equity devices outside of a 401(k) plan. But today, many 
     employers, from a broad cross-section of industry, have begun 
     offering their employees opportunities to purchase employer 
     stock at a modest discount, or have provided stock options to 
     rank and file employees; and they have even provided outright 
     grants of stock under certain circumstances.
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     \1\Footnotes at end of article.
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       The Federal Reserve Board of Governors recently estimated 
     that 17 percent of large firms have introduced a stock 
     options program and 37 percent have broadened eligibility for 
     their stock option programs in the last two years.\1\ The 
     Employment Policy Foundation estimates between 9.4 million 
     and 25.8 million workers receive benefits

[[Page H2438]]

     through some type of equity participation program.\2\ The 
     trend is growing, and given the current state of the economy, 
     it is likely to continue.
       The tremendous success of our economy over the last several 
     years has been largely attributed to the high technology 
     sector. One of the things that our technology companies have 
     succeeded at is creating an atmosphere in which all employees 
     share the same goal: the success of the company. By vesting 
     all employees in the success of the business, stock options 
     and other equity devices have become an important tool to 
     create businesses with unparalleled productivity. The Worker 
     Economic Opportunity Act will encourage more employers to 
     provide opportunities for equity participation to their 
     employees, further expanding the benefits that inure from 
     equity participation.


                ii. background and need for legislation

           A. Background on Stock Options and Related Devices

       Employers use a variety of equity devices to share the 
     benefits of equity ownership with their employees. As the 
     employer's stock appreciates, these devices provide a tool to 
     attract and retain employees, an increasingly difficult task 
     during a time of record economic growth and low unemployment 
     in the United States. These programs also foster a broader 
     sense of commitment to a common goal--the maintenance and 
     improvement of the company's performance--among all employees 
     nationally and even internationally, and thus provide an 
     alignment between the interests of employees with the 
     interests of the company and it shareholders. They can also 
     reinforce the evolving employer-employee relationship, with 
     employees viewed as stakeholders.
       Employer stock option and stock programs come in all 
     different types and formats. The Worker Economic Opportunity 
     Act focuses on the most common types: stock option, stock 
     appreciation right, and employee stock purchase programs.
       Stock Option Programs. Stock options provide the right to 
     purchase the employer's securities for a fixed period of 
     time. Stock option programs vary greatly by employer. 
     However, two main types exist: nonqualified and qualified 
     option programs.\3\ Most programs are nonqualified stock 
     option programs, meaning that the structure of the program 
     does not protect the employee from being taxed at the time of 
     exercise. However, the mechanics of stock option programs are 
     very similar regardless of whether they are nonqualified or 
     qualified. Some of these characteristics are described below.
       Grants. An employer grants to employees a certain number of 
     options to purchase shares of the employer's stock. The 
     exercise price may be around the fair market value of the 
     stock at the time of the grant, or it may be discounted below 
     fair market value to provide the employee an incentive to 
     participate in the option program.
       Vesting. Most stock option programs have some sort of 
     requirement to wait some period after the grant to benefit 
     from the options, often called a vesting period. After the 
     period, employees typically may exercise their options by 
     exchanging the options for stock at the exercise price at any 
     time before the option expires, which is typically up to ten 
     years. In some cases, options may vest on a schedule, for 
     example, with a third of the options vesting each year over a 
     three-year period. In addition to vesting on a date certain, 
     some options may vest if the company hits a certain goal, 
     such as reaching a certain stock price for a certain number 
     of days. Some programs also provide for accelerated or 
     automatic vesting in certain circumstances such as when an 
     employee retires or dies before the vesting period has run, 
     where there is change in corporate control or when an 
     employee's employment is terminated.
       Exercise. Under both qualified and nonqualified stock 
     option programs, an employee can exchange the options, along 
     with sufficient cash to pay the exercise price of the 
     options, for shares of stock. Because many rank-and-file 
     employees cannot afford to pay the cost of buying the stock 
     at the option price in cash, many employers have given their 
     employees the opportunity for ``cashless'' exercise, either 
     for cash or for stock, under nonqualified option plans. In a 
     cashless exercise for cash, an employee gives options to a 
     broker or program administrator, this party momentarily 
     ``lends'' the employee the money to purchase the requisite 
     number of shares at the exercise price, and then immediately 
     sells the shares. The employee receives the 
     difference between the market price and the exercise price 
     of the stock (the profit), less transaction fees. In a 
     cashless exercise for stock, enough shares are sold to 
     cover the cost of buying the shares the employee will 
     retain. In either case, the employee is spared from having 
     to provide the initial cash to purchase the stock at the 
     option price.
       An employee's options usually expire at the end of the 
     option period. An employee may forfeit the right to exercise 
     the options, in whole or in part, under certain 
     circumstances, including upon separation from the employer. 
     However, some programs allow the employee to exercise the 
     options (sometimes for a limited period of time) after they 
     leave employment with the employer.
       Stock Appreciation Rights. Stock appreciation rights (SARs) 
     operate similarly to stock options. They are the rights to 
     receive the cash value of the appreciation on an underlying 
     stock or equity based security. The stock may be publicly 
     traded, privately held, or may be based on valued, but 
     unregistered, stock or stock equivalent. The rights are 
     issued at a fixed price for a fixed period of time and can be 
     issued at a discount, carry a vesting period, and are 
     exercisable over a period of time. SARs are often used when 
     an employer cannot issue stock because the stock is listed on 
     a foreign exchange, or regulatory or financial barriers make 
     stock grants impracticable.
       Employee Stock Purchase Plans. Employee stock purchase 
     plans (ESPPs) give employees the opportunity to purchase 
     employer stock, usually at up to a 15 percent discount, by 
     either regularly or periodically paying the employer directly 
     or by having after-tax money withdrawn as a payroll 
     deduction. Like option programs, ESPPs can be qualified or 
     nonqualified.
       Section 423 of the Internal Revenue Code \4\ sets forth the 
     factors for a qualified ESPP. The ability to participate must 
     be offered to all employees, and employees must voluntarily 
     choose whether to participate in the program. The employer 
     can offer its stock to employees at up to a 15 percent 
     discount off of the fair market value of the stock, 
     determined at the time the option to purchase stock is 
     granted or at the time the stock is actually purchased. The 
     employee is required to hold the stock for one or two years 
     after the option is granted to receive capital gains 
     treatment. If the employee sells the stock before the 
     requisite period, any gain made on the sale is treated as 
     ordinary income.
       Nonqualified ESPPs are usually similar to qualified ESPPs, 
     but they lack one or more qualifying features. For example, 
     the plan may apply only to one segment of employees, or may 
     provide for a greater discount.

           B. The Fair Labor Standards Act and Stock Options

       The Fair Labor Standards Act of 1938 \5\ (FLSA) establishes 
     workplace protections including a minimum hourly wage and 
     overtime compensation for covered employees, record keeping 
     requirements and protections against child labor, among other 
     provisions. A cornerstone of the FLSA is the requirement that 
     an employer pay its nonexempt employees overtime for all 
     hours worked over 40 in a week at one and one-half times the 
     employee's regular rate of pay.\6\ The term ``regular rate'' 
     is broadly defined in the statute to mean ``all remuneration 
     for employment paid to, or on behalf of, the employee.'' \7\
       Section 207(e) of the statute excludes certain payments 
     from an employee's regular rate of pay to encourage employers 
     to provide them, without undermining employees' fundamental 
     right to overtime pay. Excluded payments include holiday 
     bonuses or gifts,\8\ discretionary bonuses,\9\ bona fide 
     profit sharing plans,\10\ bona fide thrift or saving 
     plans,\11\ and bona fide old-age, retirement, life, accident 
     or health or similar benefits plans.\12\ By excluding these 
     payments from the definition of ``regular rate,'' \13\ 
     Congress recognized that certain kinds of benefits provided 
     to employees are not within the generally accepted meaning of 
     compensation for work performed.
       Thus, by excluding these payments from the regular rate in 
     section 207(e) of the FLSA, Congress encouraged employers to 
     provide these payments and benefits to employees. The 
     encouragement has worked well--employees now expect to 
     receive from their employer at least some of these benefits 
     (i.e. healthcare), which today, on average, comprise almost 
     30 percent of employees' gross compensation.\14\ For similar 
     reasons, Congress decided that the value and income from 
     stock option, SAR and ESPP programs should also be excluded 
     from the regular rate, because they allow employees to share 
     in the future success of their companies.

      C. The Department of Labor's Opinion Letter on Stock Options

       The impetus behind the Worker Economic Opportunity Act is 
     the broad dissemination of a February 1999 advisory opinion 
     letter \15\ regarding stock options issued by the Department 
     of Labor's Wage and Hour Division, the agency charged with 
     the administration of the FLSA. The letter involved an 
     employer's stock option program wherein its employees would 
     be notified of the program three months before the options 
     were granted, and some rank-and-file employees employed by 
     the company on the grant date would receive options. The 
     options would have a two-year vesting period, with 
     accelerated vesting if certain events occurred. The employer 
     would also automatically exercise any unexercised options on 
     behalf of the employees the day before the program ended.\16\
       The opinion letter indicated that the stock option program 
     did not meet any of the existing exemptions to the regular 
     rate under the FLSA, although it did not explain the reasons 
     in any detail. Later, the Administration's testimony before 
     the House Workforce Protections Subcommittee explained that 
     the stock option program did not meet the gift, discretionary 
     bonus, or profit sharing exceptions to the regular rate 
     because, among other reasons, it required employees to do 
     something as a condition of receiving the options--to remain 
     employed with the company for a period of time.\17\ Such a 
     condition is not allowed under the current regular rate 
     exclusions. The testimony also noted that the program was not 
     excludable under the thrift or savings plan exception because

[[Page H2439]]

     the employees were only allowed to exercise their options 
     using a cashless method of exercise, and thus the employees 
     could not keep the stock as savings or an investment.\18\
       The opinion letter stated that the employer would be 
     required to include any profits made from the exercise of the 
     options in the regular rate of pay of its nonexempt 
     employees. In particular, the profits would have to be 
     included in the employee's regular rate for the shorter of 
     the time between the grant date and the exercise date, or the 
     two years prior to exercise.\19\
       Section 207(e)'s exclusions to the regular rate did not 
     clearly exempt the profits of stock options or similar equity 
     devices from the regular rate, and thus from the overtime 
     calculation. Thus, the Department of Labor's opinion letter 
     provided a permissible reading of the statute. A practical 
     effect of the Department of Labor's interpretation was stated 
     by J. Randall MacDonald, Executive Vice President of Human 
     Resources and Administration at GTE during a March 2, 2000 
     House Workforce Protections Subcommittee hearing on the 
     issue: ``[i]f the Fair Labor Standards Act is not corrected 
     to reverse this policy, we will no longer be able to offer 
     stock options to our nonexempt employees.'' \20\
       As the contents of the letter became generally known in the 
     business community and on Capitol Hill, it became clear that 
     the letter raised an issue under the FLSA that previously had 
     not been contemplated. It further became clear that an 
     amendment to the FLSA would be needed to change the law 
     specifically to address stock options.
       A legislative solution was not only supported by employers 
     at the House hearing, it was also supported by employees and 
     unions. Patricia Nazemetz, Vice President of Human Resources 
     for Xerox Corporation, read a letter from the Union of 
     Needlework, Industrial and Textile Employees (UNITE), the 
     union that represents many Xerox manufacturing and 
     distribution employees, in which the International Vice 
     President stated:
       Xerox's UNITE chapter would strongly urge Congress to pass 
     legislation exempting stock options and other forms of stock 
     grants from the definition of the regular rate for the 
     purposes of calculating overtime. . . . It is only recently 
     that Xerox has made bargaining unit employees eligible to 
     receive both stock options and stock grants. Without a 
     clarification to the FLSA, we are afraid Xerox may not offer 
     stock options or other forms of stock grants to bargaining 
     unit employees in the future.\21\
       At the House hearing, the Administration also acknowledged 
     that the problem needed to be fixed legislatively in a 
     flexible manner, ``Based on the information we have been able 
     to obtain, there appears to be wide variations in the scope, 
     nature and design of stock option programs. There is no one 
     common model for a program, suggesting the need for a 
     flexible approach. Given the wide variety and complexity of 
     programs, we believe that the best solution would be to 
     address this matter legislatively.'' \22\
       The general agreement on the need to fix the problem among 
     these diverse interests led to the development of the Worker 
     Economic Opportunity Act.


            iii. explanation of the bill and sponsors' views

       Congress worked closely with the Department of Labor to 
     develop this important legislation. The sections below 
     reflect the discussions between the sponsors and the 
     Department of Labor during the development of the 
     legislation, and the sponsors' intent and their understanding 
     of the legislation.

                    A. Definition of Bona Fide ESPP

       For the purposes of the Worker Economic Opportunity Act, a 
     bona fide employee stock purchase plan includes an ESPP that 
     is (1) a qualified ESPP under section 423 of the Internal 
     Revenue Code,\23\ or (2) a plan that meets the criteria 
     identified below.
     1. Qualified Employee Stock Purchase Plans
       Qualified ESPPs, known as section 423 plans, comprise the 
     overwhelming majority of stock purchase plans. Thus, the 
     intent of the legislation is to deem ``bona fide'' all plans 
     that meet the criteria of section 423.
     2. Nonqualified Employee Stock Purchase Plans
       As described above, section 423 plans are considered bona 
     fide ESPPs. Further, those ESPPs that do not meet the 
     criteria of section 423, but that meet the following criteria 
     also qualify as bona fide ESPPs:
       (a) the plan allows employees, on a regular or periodic 
     basis, to voluntarily provide funds, or to elect to authorize 
     periodic payroll deductions, for the purchase at a future 
     time of shares of the employer's stock;
       (b) the plan sets the purchase price of the stock as at 
     least 85% of the fair market value of the stock at the time 
     the option is granted or at the time the stock is purchased; 
     and,
       (c) the plan does not permit a nonexempt employee to accrue 
     options to purchase stock at a rate which exceeds $25,000 of 
     fair market value of such stock (determined either at the 
     time the option is granted or the time the option is 
     exercised) for each calendar year.
       The sponsors note that many new types of ESPPs are being 
     developed, particularly by companies outside the United 
     States, and that many of these companies may also intend to 
     apply them to their U.S.-based employees. These purchase 
     plans have several attributes which make them appear to be 
     more like savings plans than traditional U.S. stock purchase 
     plans, such as a period of payroll deductions of between 
     three and five years, or an employer provided ``match'' in 
     the form of stock or options to the employee.
       Further many companies are developing plans that are 
     similar to section 423 plans. The sponsors believe that it is 
     in the best interests of employees for the Secretary of Labor 
     to review these and other new types of plans carefully in the 
     light of the purpose of the Worker Economic Opportunity Act--
     to encourage employers to provide opportunities for equity 
     participation to employees--and to allow section 7(e), as 
     amended, to accommodate a wide variety of programs, where it 
     does not undermine employees' fundamental right to overtime 
     pay. It is the sponsors' vision that this entire law be 
     flexible and forward-looking and that the Department of labor 
     apply and interpret it consistently with this vision.

               B. ``Value or Income'' Is Defined Broadly

       The hallmark of the Worker Economic Opportunity Act is that 
     section 7(e)(8) provides that any value or income derived 
     from stock option, SAR or bona fide ESPP programs is excluded 
     from the regular rate of pay. For this reason, the phrase 
     ``value or income'' is construed broadly to mean any value, 
     profit, gain, or other payment obtained, recognized or 
     realized as a result of, or in connection with, the 
     provision, award, grant, issuance, exercise or payment of 
     stock options, SARs, or stock issued or purchased pursuant to 
     a bona fide ESPP program established by the employer.
       This broad definition means, for example, that any nominal 
     value that a stock option or stock appreciation right may 
     carry before it is exercised is excluded from the regular 
     rate. Similarly, the value of the stock or the income in the 
     form of cash is excluded after options are exercised, as is 
     the income earned from the stock in the form of dividends or 
     ultimately the gains earned, if any, on the sale of the 
     stock. The discount on stock option, SAR or stock purchase 
     under a ESPP program is likewise excludable.

  C. The Act Preserves Programs Which Are Otherwise Excludable Under 
                    Existing Regular Rate Exemptions

       The Worker Economic Opportunity Act recognizes two ways 
     that employer equity programs may be excluded from the 
     regular rate. Such equity programs may be excluded if they 
     meet the existing exemptions to the regular rate pursuant to 
     Section 7(e)(1)-(7), which apply to contributions and sums 
     paid by employers regardless of whether such payments are 
     made in cash or in grants of stock or other equity based 
     vehicles, and provided such payment or grant is consistent 
     with the existing regulations promulgated under Section 7(e). 
     Employer equity plans also may be excluded under new section 
     7(e)(8) added by the Worker Economic Opportunity Act.
       This is reaffirmed in new section 207(e)(8), which makes 
     clear that the enactment of section 7(e)(8) carries no 
     negative implication about the scope of the preceding 
     paragraphs of section (e). Rather, the sponsors understand 
     that some grants and rights that do not meet all the 
     requirements of section 7(e)(8) may continue to qualify for 
     exemption under an earlier exclusion. For example, programs 
     that grant options or SARs that do not have a vesting period 
     may be otherwise excludable from the regular rate if they 
     meet another section (7)(e) exclusion. This would be true 
     even if the option was granted at less than 85% of fair 
     market value. This language was not intended to prevent 
     grants or rights that meet some but not all of the 
     requirements of an earlier exemption in 7(e) from being 
     exempt under the newly created exemption.

D. Basic Communication to Employees Required Because it Helps Ensure a 
                           Successful Program

       For grants made under a stock option, SAR or bona fide ESPP 
     program to qualify for the exemption under new section 
     7(e)(8), their basic terms and conditions must be 
     communicated to participating employees either at the 
     beginning of the employee's participation in the program or 
     at the time of grant. This requirement was put into the 
     legislation to recognize that when employees understand the 
     mechanics and the implications of the equity devices they are 
     given, they can more fully participate in exercising 
     meaningful choices with respect to those devices. As 
     discussed below, this is a simple concept, it is not intended 
     to be a complicated or burdensome requirement.
     1. Terms and Conditions To Be Communicated to Employees
       Employers must communicate the material terms and 
     conditions of the stock option, stock appreciation right or 
     employee stock purchase program to employees to ensure that 
     they have sufficient information to decide whether to 
     participate in the program. With respect to options, these 
     terms include basic information on the number of options 
     granted, the number of shares granted per option, the 
     exercise price, the grant date or dates, the length of any 
     applicable vesting period(s) and the dates when the employees 
     will first be able to exercise options or rights, under what 
     conditions the options must be forfeited or surrendered, the 
     exercise methods an employee may use (such as cash for stock, 
     cashless for cash or stock, etc.), any restrictions on stock 
     purchased through options, and the duration of the option, 
     and what happens to unexercised options at the end of the 
     exercise period. Pending issuance of any regulations, an 
     employer who communicated the information in the

[[Page H2440]]

     prior sentence is to be deemed to have communicated the terms 
     and conditions of the grant. Similar information should be 
     provided regarding SARs or ESPPs.
     2. The Mode of Communications
       The legislation does not specify any particular mode of 
     communication of relevant information, and no particular 
     method of communication is required, as long as the method 
     chosen reasonably communicates the information to employees 
     in a understandable fashion. For example, employers may 
     notify their employees of an option grant by letter, and 
     later provide a formal employee handbook, or other method 
     such as a link to a location on the company Intranet. Any 
     combination of communications is acceptable. The intent of 
     the legislation is to ensure that employees are provided the 
     basic information in a timely manner, not to mandate the 
     particular form of communication, nor to bar the use of new 
     forms of communication. Therefore, an employer should be able 
     to use current electronic communication methods, as well as 
     other forms of communication that develop later.
     3. The Timing of Communications
       The legislation specifies that the employer is to 
     communicate the terms and conditions of the stock option, SAR 
     and ESPP programs to employees at or before the beginning of 
     the employee's participation in the program or at the time 
     the employee receives a grant. It is acceptable, and perhaps 
     even likely, that the relevant information on a program will 
     be disseminated in a combination of communications over time. 
     This approach allows flexibility and acknowledges that types 
     of participation vary greatly between stock option and SAR 
     programs, on the one hand, and ESPPs on the other.
       For example, under an ESPP, an employee may choose to begin 
     payroll deductions in January, but not actually have the 
     option to purchase stock until June. By contrast, with an 
     option or SAR program, employees are given the options or 
     rights at the outset, but those rights may not vest until 
     some year in the future.
       The timing of the communication is flexible, because often 
     it is difficult to have materials ready for employees at the 
     beginning of a stock option or stock appreciation right 
     program, immediately following approval by the Board of 
     Directors, because of confidentiality requirements. Thus, 
     within a reasonable time following approval of a stock option 
     grant by the Board of Directors, the employer is required to 
     communicate basic information about the grant employees have 
     received. For example, an initial letter may notify the 
     employees that they have received a certain number of stock 
     options and provide the basic information about the program. 
     More detailed information about the program may precede or 
     follow the grant in formats such as an employee handbook, 
     options pamphlet, or an Intranet site that provides options 
     information.

  E. Exercisability Criteria Applicable only to Stock Options and SARs

       As discussed above, a common feature in grants of stock 
     options and SARs is a vesting or holding period, which under 
     current practice may be as short as a few months or as long 
     as a number of years. For a stock option of SAR to be 
     excluded from the regular rate pursuant to the Worker 
     Economic Opportunity Act, new section 7(e)(8) requires that 
     the grant or right generally cannot be exercisable for at 
     least six months after the date of grant.
       For stock option grants that include a vesting requirement, 
     typically an option will become exercisable after the vesting 
     period ends. Some option grants vest gradually in accordance 
     with a schedule. For example, a portion of the employee's 
     options may vest after six months, with the remaining portion 
     vesting three months thereafter. Options may also vest in 
     connection with an event, such as the stock reaching a 
     certain price or the company attaining a performance target.
       In addition, the sponsors recognize that a grant that is 
     vested may not be currently exercisable by the employee 
     because of an employer's requirement that the employee hold 
     the option for a minimum period prior to exercise. In other 
     words, there may be an additional period of time after the 
     vesting period during which the option remains 
     unexerciseable. An option or SAR may meet the exercisability 
     requirements of the bill without regard to the reason why the 
     right to exercise is delayed.
       Further, if a single grant of options or SARs includes some 
     options exercisable after six months while others are 
     exercisable earlier, then those exercisable after the six 
     month period will meet the exercisability requirement even if 
     the others do not. The determination is made option by 
     option, SAR by SAR. In addition, if exercisability is tied to 
     an event, the determination of whether the six-month 
     requirement is met is based on when the event actually 
     occurs. Thus, for example, if an option is exercisable only 
     after an initial public offering (IPO) and the IPO occurs 
     seven months after grant, the option shall be deemed to have 
     met the provision's exercisability requirement.
       However, section 7(e)(8)(B) specifically recognizes that 
     there are a number of special circumstances when it is 
     permissible for an employer to allow for earlier exercise to 
     occur (in less than 6 months) without loss of the exemption. 
     For example, an employer or plan may provide that a grant may 
     vest or otherwise become exercisable earlier than six months 
     because of an employee's disability, death, or retirement. 
     The sponsors encourage the Secretary to consider and evaluate 
     other changes in employees' status or circumstances.
       Earlier exercise is also permitted in connection with a 
     change in corporate ownership. The term change in ownership 
     is intended to include events commonly considered changes in 
     ownership under general practice for options and SARs. For 
     example, the term would include the acquisition by a party of 
     a percentage of the stock of the corporation granting the 
     option or SAR, a significant change in the corporation's 
     board of directors within 24 months, the approval by the 
     shareholders of a plan or merger, and the disposition of 
     substantially all of the corporation's assets.
       The sponsors believe it important to allow employers the 
     flexibility to construct plans that allow for these earlier 
     exercise situations. However, this section is not intended to 
     in any way require employers to include these or any other 
     early exercise circumstances in their plans.

F. Stock Option and SAR Programs may Be Awarded at Fair Market Value or 
                   Discounted up to and Including 15%

       Stock options and SARs generally are granted to employees 
     at around fair market value or at a discount. New section 
     7(e)(8)(B) recognizes that grants may be at a discount, but 
     that the discount cannot be more than a 15% discount off of 
     the fair market value of the stock (or in the case of stock 
     appreciation rights, the underlying stock, security or other 
     similar interest).
       A reasonable valuation method must be used to determine 
     fair market value at the time of grant. For example, in the 
     case of a publicly traded stock, it would be reasonable to 
     determine fair market value based on averaging the high 
     and low trading price of the stock on the date of the 
     grant. Similarly, it would be reasonable to determine fair 
     market value as being equal to the average closing price 
     over a period of days ending with or ending shortly before 
     the grant date (or the average of the highs and lows on 
     each day). In the case of a non-publicly traded stock, any 
     reasonable valuation that is made in good faith and based 
     on reasonable valuation principles must be used.
       The sponsors understand that the exercise price of stock 
     options and SARs is sometime adjusted in connection with 
     recapitalizations and other corporate events. Accounting and 
     other tax guidelines have been developed for making these 
     adjustments in a way that does not modify a participant's 
     profit opportunity. Any adjustment conforming with these 
     guidelines does not create an issue under the 15% limit on 
     discounts.

     G. Employee Participation in Equity Programs Must Be Voluntary

       New section (8)(C) of the Worker Economic Opportunity Act 
     states that the exercise of any grant or right must be 
     voluntary. Voluntary means that the employee may or may not 
     choose not to exercise his or her grants or rights at any 
     point during the stock option, stock appreciation right, or 
     employee stock purchase program, as long as that is in 
     accordance with the terms of the program. This is a simple 
     concept and it is not to be interpreted as placing any other 
     restrictions on such programs.
       It is the intent of the sponsors that this provision does 
     not restrict the ability of an employer to automatically 
     exercise stock options or SARs for the employee at the 
     expiration of the grant or right. However, an employer may 
     not automatically exercise stock options or SARs for an 
     employee who has notified the employer that he or she does 
     not want the employer to exercise the options or rights on 
     his or her behalf.
       Stock option, SARs and ESPP programs may qualify under new 
     section 7(e)(8) even though the employer chooses to require 
     employees to forfeit options, grants or rights in certain 
     employee separation situations.

                     H. Performance Based Programs

       The purpose of new section 7(e)(8)(D) is to set out the 
     guidelines employers must follow in order to exclude from the 
     ``regular rate' grants of stock options, SARs, or shares of 
     stock pursuant to an ESPP program based on performance. If 
     neither the decision of whether to grant nor the decision as 
     to the size of the grant is based on performance, the 
     provisions of in new section 7(e)(8)(D) do not apply. For 
     example, grants made to employees at the time of their hire, 
     and any value or income derived from these grants, may be 
     excluded provided they meet the requirements in new sections 
     7(e)(8)(A)-(C).
       New section 8(D) is divided into two clauses. The first, 
     clause (i), deals with awards of options awarded based on 
     pre-established goals for future performance, and the second, 
     clause (ii), deal with grants that are awarded based on past 
     performance.
     1. Goals for Future Performance
       New section 7(e)(8)(D)(i) provides that employers may tie 
     grants to future performance so long as the determinations as 
     to whether to grant and the amount of grant are based on the 
     performance of either (i) any business unit consisting of at 
     least ten employees or (ii) a facility.
       A business unit refers to all employees in a group 
     established for an identifiable business purpose. The 
     sponsors intend that employers should have considerable 
     flexibility in defining their business units. However, the 
     unit may not merely be a pretext for measuring the 
     performance of a single employee or small group of fewer than 
     ten employees. By way of example, a unit may include any of 
     the following: (i) a department,

[[Page H2441]]

     such as the accounting or tax departments of a company, (ii) 
     a function, such as the accounts receivable function within a 
     company's accounting department, (iii) a position 
     classification, such as those call-center personnel who 
     handle initial contacts, (iv) a geographical segment of a 
     company's operations, such as delivery personnel in a 
     specified geographical area, (v) a subsidiary or operating 
     division of a company, (vi) a project team, such as the group 
     assigned to test software on various computer configurations 
     or to support a contract or a new business venture.
       With respect to the requirement to have ten or more 
     employees in a unit, this determination is based on all of 
     the employees in the unit, not just those employees who are, 
     for example, non-exempt employees.
       A facility includes any separate location where the 
     employer conducts its business. Two or more locations that 
     would each qualify as a facility may be treated as a single 
     facility. Performance measurement based on a particular 
     facility is permitted without regard to the number of 
     employees who are working at the facility. For example, a 
     facility would include any of the following: a separate 
     office location, each separate retail store operated by a 
     company, each separate restaurant operated by a company, a 
     plant, a warehouse, or a distribution center.
       The definition of both a business unit and a facility are 
     intended to be flexible enough to adapt to future changes in 
     business operations. Therefore, the examples of business 
     units set forth above should be viewed with this in mind.
       Options may be excluded from the regular rate in accordance 
     with new section 7(e)(8)(D)(i) under the following 
     circumstances:
       Example 1--Employer announces that certain employees at the 
     Wichita, Kansas plant will receive 50 stock options if the 
     plant's production reaches a certain level by the end of the 
     year (note that in order to fit within this subsection, the 
     grant does not have to be made on a facility wide basis);
       Example 2--Employer announces that it will grant employees 
     working on the AnyCo. account 50 stock options each if the 
     account brings in a certain amount of revenue by the end of 
     the year, provided that there are at least 10 employees on 
     the AnyCo. account.
       Example 3--Employer announces that certain employees will 
     receive stock options if the company reaches specified goal.
       New section 7(e)(8)(D)(i) also makes clear that otherwise 
     qualifying grants remain excludable from the regular rate if 
     they are based on an employees' length of service or minimum 
     schedule of hours or days of work. For example, an employer 
     may make grants only to employees: (i) who have a minimum 
     number of years of service, (ii) who have been employed for 
     at least \24\ a specified number of hours of service during 
     the previous twelve month period (or other period), (iii) who 
     are employed on the grant date (or a period ending on the 
     grant date), (iv) who are regular full-time employees (i.e., 
     not part-time or seasonal), (v) who are permanent employees, 
     or (vi) who continue in service for a stated period after the 
     grant date (including any minimum required hours during this 
     period). Any or all of these conditions, and similar 
     conditions, are permissible.
     2. Past Performance
       New section 7(e)(8)(d)(ii) clarifies that employers may 
     make determinations as to existence and amount of grants or 
     rights based on past performance, so long as the 
     determination is in the sole discretion of the employer and 
     not pursuant to any prior contract. Thus, employers have 
     broad discretion to make grants as rewards for the past 
     performance of a group of employees, even if it is not a 
     facility or business unit, or even for an individual 
     employee. The determination may be based on any performance 
     criteria, including hours of work, efficiency or 
     productivity.
       Under new section 7(e)(8)(D)(ii), employers may develop a 
     framework under which they will provide options in the 
     future, provided that to the extent the ultimate 
     determination as to the fact of and the amount of grants or 
     rights each employee will receive is based on past 
     performance, the employer does not contractually obligate 
     itself to provide the grant or rights to an employee. Thus, 
     new section 7(e)(8)(D)(ii) would allow an employer to 
     determine in advance that it will provide 100 stock options 
     to all employees who receive ``favorable'' ratings on their 
     performance evaluations at the end of the year, and it would 
     allow the employer to advise employees, in employee handbooks 
     or otherwise, of the possibility that favorable evaluations 
     may rewarded by option grants, so long as the employer does 
     not contractually obligate itself to provide the grants or in 
     any other way relinquish its discretion as to the existence 
     or amount of grants.
       Similarly, the fact that an employer makes grants for 
     several years in a row based on favorable performance 
     evaluation ratings, even to the point where employees come to 
     expect them, does not mean in itself that the employer may be 
     deemed to have ``contractually obligated'' itself to provide 
     the rights.
       Some examples of performance based grants that fit within 
     new 7(e)(8)(D)(ii) are as follows:
       Example A: Company A awards stock options to encourage 
     employees to identify with the company and to be creative and 
     innovative in performing their jobs. Company A's employee 
     handbook includes the following: ``Company A's stock option 
     program is a long-term incentive used to recognize the 
     potential for, and provide an incentive for, anticipated 
     future performance. Stock option grants may be awarded to 
     employees at hire, on an annual basis, or both. All full-time 
     employees who have been employed for the appropriate service 
     time are eligible to be considered for annual stock option 
     grants.''
       Company A provides stock options to most nonexempt 
     employees following their performance review. Each employee's 
     manager rates the employee during a review process, resulting 
     in a rating of from 1 to 5. The rating is based upon the 
     manager's objective and subjective analysis of the employee's 
     performance. The rating is then put into a formula to 
     determine the number of options an employee is eligible to 
     receive, based on the employee's level within the company, 
     the product line that the employee works on, and the value of 
     the product to the company's business. Employees are aware a 
     formula is used. The Company then informs the employee of the 
     number of options awarded to him or her.
       Managers make it clear to employees that the options are 
     granted in recognition of prior performance with the 
     expectation of the employee's future performance, but no 
     contractual obligation is made to employees. This process is 
     repeated annually, with employees eligible for stock options 
     each year based on their annual performance review. Most 
     employees receive options annually based upon their 
     performance review rating and their level in the company.
       Example B: Company B manages its program similarly to 
     company A, with some notable exceptions. Company B has a very 
     detailed performance management system, under which all 
     employees successfully meeting the expectations of their job 
     receive options. The employee's job expectations are more 
     clearly spelled out on an annual basis than under Company A's 
     plan. Once a year, the employee under goes a formal, written, 
     performance review with his or her manager. If work is 
     satisfactory, the employee receives a predetermined but 
     unannounced number of options. Unlike Company A, which 
     provides different amounts of options to employees based upon 
     a numeric performance rating, Company B provides the same 
     number of options to all employees who receive satisfactory 
     employment evaluations. Over 90 percent of Company B's 
     employees receive options annually, and in many years, this 
     percentage exceeds 95 percent.
       In both Example A and Example B, the employers set up in 
     advance the formula under which option decisions are made; 
     however, the decisions as to whether an individual employee 
     would receive options and how many options he or she would 
     receive was made based on past performance at the end of the 
     performance period, but not pursuant to a prior contractual 
     obligation made to the employees. The fact that the employer 
     determines a formula or program in advance does not 
     disqualify these examples from new section 7(e)(8).

                         I. Extra Compensation

       The Worker Economic Opportunity Act also amends section 
     7(h) of the FLSA (29 U.S.C. Sec. 207(h)) to ensure that the 
     income or value that results from a stock option, SAR or ESPP 
     program, and that is excluded from the regular rate by new 
     section 7(e)(8), cannot be credited by an employer toward 
     meeting its minimum wage obligations under section 6 of the 
     Act or overtime obligations under section 7 of the Act. The 
     language divides section 7(h) into two parts, 7(h)(1) and 
     7(h)(2). Section 7(h)(1) states that an employer may not 
     credit an amount, sum, or payment excluded from the regular 
     rate under existing sections 7(e)(1-7) or new section 7(e)(8) 
     towards an employers' minimum wage obligation under section 6 
     of the Act. When section 7(h)(1) is read together with 
     section 7(h)(2), it states that an employer may not credit an 
     amount excluded under existing sections 7(e)(1-4) or new 
     section 7(e)(8) toward overtime payments. However, consistent 
     with existing 7(h), extra compensation paid by an employer 
     under sections 7(e)(5-7) may be creditable towards an 
     employer's overtime obligations. This change shall take 
     effect on the effective date but will not affect any payments 
     that are not excluded by section 7(e) and thus are included 
     in the regular rate.

 J. The Legislation Includes a Broad Pre-Effective Date Safe Harbor & 
                            Transition Time

       In drafting the Worker Economic Opportunity Act, the 
     sponsors hoped to create an exemption that would be broad 
     enough to capture the diverse range of broad-based stock 
     ownership programs that are currently being offered to non-
     exempt employees across this nation. However, in order to 
     reach a consensus, the new exemption had to be tailored to 
     comport with the existing framework of the FLSA. The result 
     is a series of requirements that stock option, SAR and ESPP 
     programs must meet in order for the proceeds of those plans 
     to fit within the newly created exemption.
       Because of the circumstances that give rise to this 
     legislation, the pre-effective date safe harbor is 
     intentionally broader than the new exemption. The sponsors 
     did not want to penalize those employers who have been 
     offering broad-based stock option, SAR and ESPP programs 
     simply because these programs would not meet all the new 
     requirements in section 7(e)(8). Thus, the safe harbor in 
     section 2(d) of the Act comprehensively protects

[[Page H2442]]

     employers from any liability or other obligations under the 
     FLSA for failing to include any value or income derived from 
     stock option, SAR and ESPP programs in a non-exempt 
     employee's regular rate of pay. The safe harbor applies to 
     all grants or rights that were obtained under such programs 
     prior to the effective date, whether or not such programs fit 
     within the new requirements of section 7(e)(8). If a grant or 
     right was initially obtained prior to the effective date, it 
     is covered by the safe harbor even though it vested later or 
     was contingent on performance that would occur later. In 
     addition, normal adjustments to a pre-effective date grant or 
     right, such as those that are triggered by a 
     recapitalization, change of control or other corporate event, 
     will not take the grant or right outside the safe harbor.
       On a prospective basis, the sponsors realized that many 
     employers would need time to evaluate their programs in light 
     of the new law and to make the changes necessary to ensure 
     that the programs will fit within the new section 7(e)(8) 
     exemption. Consequently, the sponsors adopted a broad 
     transition provision to apply to stock option, SAR and ESPP 
     programs without regard to whether or not they meet the 
     requirements for these plans set forth in the legislation. 
     Specifically, section 2(c) of the legislation contains a 90 
     day post enactment delayed effective date. The sponsors 
     believe that the vast majority of employers who offer stock 
     option, SAR and ESPP programs to non-exempt employees will be 
     able to use the transition period in section 2(d)(1) to 
     modify their programs to conform with the requirements of the 
     legislation.
       In addition, the sponsors felt that there were two 
     circumstances where a further extension of this broad 
     transition relief was appropriate. First, the legislation 
     recognizes that some employers would need the consent of 
     their shareholders to change their plans. Section 2(d)(2) 
     provides an additional year of transition relief to any 
     employer with a program in place on the date this legislation 
     goes into effect that will require shareholder approval to 
     make the changes necessary to comply with the new 
     requirements of section 7(e)(8). Second, the legislation 
     extends the transition relief to cover situations wherein an 
     employers' obligations under a collective bargaining 
     agreement conflict with the requirements of this Act. Section 
     2(d)(3) eliminates any potential conflict by allowing 
     employers to fulfill their pre-existing contractual 
     obligations without fear of liability.


                     v. regulatory impact statement

       The sponsors have determined that the bill would result in 
     some additional paperwork, time and costs to the Department 
     of Labor, which would be entrusted with implementation of the 
     Act. It is difficult to estimate the volume of additional 
     paperwork necessitated by the Act, but the sponsors do not 
     believe that it will be significant.


                    vi. section-by-section analysis

       Sec. 2. (a) Amendments to the Fair Labor Standards Act--The 
     legislation amends Section 7(e) of the Fair Labor Standards 
     Act of 1938 (29 U.S.C.Sec. 207(e)) by creating a new 
     subsection, 7(e)(8), which will exclude from the definition 
     of the regular rate of pay any income or value nonexempt 
     employees derive from an employer stock option, stock 
     appreciation right, or bona fide employee stock purchase 
     program under certain circumstances. Specifically, the 
     legislation adds the following provisions to the end of 
     Section 7(e) of the Fair Labor Standards Act:
       (8) The new exclusion provides that when an employer gives 
     its employees an opportunity to participate in a stock 
     option, stock appreciation right or a bona fide employee 
     stock purchase program (as explained in the Explanation of 
     the Bill and Sponsor's Views), any value or income received 
     by the employee as a result of the grants or rights provided 
     pursuant to the program that is not already excludable from 
     the regular rate of pay under sections 7(e)(1-7) of the Act 
     (29 U.S.C. Sec. 207(e)), will be excluded from the regular 
     rate of pay, provided the program meets the following 
     criteria--
       (8)(A) The employer must provide employees who are 
     participating in the stock option, stock appreciation right 
     or bona fide employee stock purchase program with information 
     that explains the terms and conditions of the program. The 
     information must be provided at the time when the employee 
     begins participating in the program or at the time when the 
     employer grants the employees stock options or stock 
     appreciation rights.
       (8)(B) As a general rule, the stock option or stock 
     appreciation right program must include at least a 6 month 
     vesting (or holding) period. That means that employees will 
     have to wait at least 6 months after they receive stock 
     options or a stock appreciation right before they are able to 
     exercise the right for stock or cash. However, in the event 
     that the employee dies, becomes disabled, or retires, or if 
     there is a change in corporate ownership that impacts the 
     employer's stock or in other circumstances set forth at a 
     later date by the Secretary in regulations, the employer has 
     the ability to allow its employees to exercise their stock 
     options or stock appreciation rights sooner. The employer may 
     offer stock options or stock appreciation rights to employees 
     at no more than a 15 percent discount off the fair market 
     value of the stock or the stock equivalent determined at the 
     time of the grant.
       (8)(C) An employee's exercise of any grant or right must be 
     voluntary. This means that the employees must be able to 
     exercise their stock options, stock appreciation rights or 
     options to purchase stock under a bona fide employee stock 
     purchase program at any time permitted by the program or to 
     decline to exercise their rights. This requirement does not 
     preclude an employer from automatically exercising 
     outstanding stock options or stock appreciation rights at the 
     expiration date of the program.
       (8)(D) If an employer's grants or rights under a stock 
     option or stock appreciation right program are based on 
     performance, the following criteria apply.
       (1) If the grants or rights are given based on the 
     achievement of previously established criteria, the criteria 
     must be limited to the performance of any business unit 
     consisting of 10 or more employees or of any sized facility 
     and may be based upon that unit's or facility's hours of 
     work, efficiency or productivity. An employer may impose 
     certain eligibility criteria on all employees before they may 
     participate in a grant or right based on these performance 
     criteria, including length of service or minimum schedules of 
     hours or days of work.
       (2) The employer may give grants to individual employees 
     based on the employee's past performance, so long as the 
     determination remains in the sole discretion of the employer 
     and not according to any prior contract requiring the 
     employer to do so.
       (b) Extra Compensation--The bill amends section 7(h) of the 
     Fair Labor Standards Act (29 U.S.C. 207(h) to make clear that 
     the amounts excluded under section 7(e) of the bill are not 
     counted toward an employer's minimum wage requirement under 
     section 6 of the Fair Labor Standards Act and that the 
     amounts excluded under sections 7(e)(1-4) and new section 
     7(e)(8) are not counted toward overtime pay under section 7 
     of the Act.
       (c) Effective Date--The amendments made by the bill take 
     effect 90 days after the date of enactment.
       (d) Liability of Employers--
       (1) No employer shall be liable under the FLSA for failing 
     to include any value or income derived from any stock option, 
     stock appreciation right and employee stock purchase program 
     in an non-exempt employee's regular rate of pay, so long as 
     the employee received the grant or right at any time prior to 
     the date this amendment takes effect.
       (2) Where an employer's pre-existing stock option, stock 
     appreciation right, or employee stock purchase program will 
     require shareholder approval to make the changes necessary to 
     comply with this amendment, the employer shall have an 
     additional year from the date this amendment takes effect to 
     change its plan without fear of liability.
       (3) Where an employer is providing stock options, stock 
     appreciation rights, or an employee stock purchase program 
     pursuant to a collective bargaining agreement that is in 
     effect on the effective date of this amendment, the employer 
     may continue to fulfill its obligations under that collective 
     bargaining agreement without fear of liability.
       (e) Regulations--the bill gives the Secretary of Labor 
     authority to promulgate necessary regulations.


                               Footnotes

     \1\ David Lebow et al., Recent Trends in Compensation 
     Practices, Board of Governors of the Federal Reserve System, 
     Fin. and Econ. Discussion Series, No. 1999-32, July 1999.
     \2\ Anita U. Hattinagadi, Taking Stock: $470,000 at Risk for 
     Hourly Workers, Employment Policy Foundation, Mar. 2, 2000, 
     at 4, and Fig. 2.
     \3\ Any stock option program that meets the criteria under 
     section 422 of the Internal Revenue Code (called an Incentive 
     Stock Option) is considered a qualified option. 26 U.S.C. 
     Sec. 422.
     \4\ 26 U.S.C. Sec. 423.
     \5\ 29 U.S.C. Sec. 201, et seq.
     \6\ 29 U.S.C. Sec. 207(a)(1).
     \7\ 29 U.S.C. Sec. 207(e).
     \8\ 29 U.S.C. Sec. 207(e)(1).
     \9\ 29 U.S.C. Sec. 207(e)(3).
     \10\ Id.
     \11\ Id.
     \12\ 29 U.S.C. Sec. 207(e)(4).
     \13\ See e.g., Conference Report on H.R. 5856, H. Rept. No. 
     1453.
     \14\ U.S. Dept. of Lab. Bureau of Lab. Statistics, Employer 
     Costs for Employee Compensation--March 1999, available at 
     ftp://146.142.4.23/pub/news.release/ecec.txt.
     \15\ A wage-hour opinion letter responds to a request for the 
     Department of Labor's view of how the law applies to a given 
     set of facts. The letters are available to the public upon 
     request or through commercial reporting services. Opinion 
     letters have significant practical effects: ``[T]he 
     Administrator's interpretation . . . has the characteristic 
     not only of securing `expected compliance' . . . but of 
     possibly stimulating double damage suits by employees who 
     need not fear that they would be at odds with the Government 
     Officials involved.'' National Automatic Laundry & Cleaning 
     v. Schultz, 143 U.S. App. D.C. 274 (D.C. Cir. 1971).
     \16\ Letter from Daniel F. Sweeney, Office of Enforcement 
     Policy, Fair Labor Standards Team, Wage & Hour Division, Feb. 
     12, 1999.
     \17\ Hearing on the Treatment of Stock Options and Employee 
     Investment Opportunities Under the Fair Labor Standards Act 
     before the House Committee on Education and the Workforce, 
     Subcommittee on Workforce Protections, 106th Cong. 2d Sess. 
     Mar. 2, 2000 (Statement of T. Michael Kerr, at 4-5).
     \18\ Id. at 5. The testimony also noted that the program's 
     automatic exercise feature prevented the employees' 
     participation from being voluntary, as required under the 
     Division's rules for thrift savings programs.
     \19\ Letter from Daniel F. Sweeney, Office of Enforcement 
     Policy, Fair Labor Standards Team, Wage & Hour Division, Feb. 
     12, 1999.
     \20\ Hearing on the Treatment of Stock Options and Employee 
     Investment Opportunities Under the Fair Labor Standards Act 
     before the House Committee on Education and the Workforce, 
     Subcommittee on Workforce Protections, 106th Cong. 2d Sess. 
     Mar. 2, 2000 (Statement of J. Randall MacDonald, at 2).
     \21\ Id. (addendum to statement of Patricia Nazemetz, Letter 
     from Gary J. Bonadonna, Director

[[Page H2443]]

     & International Vice President, UNITE, February 22, 2000).
     \22\ Id. (statement of T. Michael Kerr, at 7).
     \23\ 26 U.S.C. Sec. 423.

  Mr. Speaker, I reserve the balance of my time.
  Mr. OWENS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in support of the Worker Economic Opportunity 
Act. It is kind of complicated so I think it is important that the 
record reflect that we understand those complications.
  Stock option programs have existed for decades, but traditionally 
they have only been provided to top executives. Laudably, in recent 
years a number of companies have expanded these programs to cover rank 
and file workers. However, when this practice was brought to the 
attention of the Department of Labor, it correctly found that in many 
cases income earned by workers participating in these kinds of programs 
do not qualify within any of the existing statutory exemptions for 
exclusion from overtime.
  As a general matter, ignorance of or disregard for the law should not 
serve to justify its violation. In this instance, however, I fully 
concur that speculative stock options should not be subject to overtime 
and that invoking the requirements of the law at this late date ex post 
facto would be unfair and unwise.
  This legislation provides that if certain conditions are met, income 
earned by workers as a result of participation in certain recognized 
option programs, stock appreciation programs, or bona fide employee 
stock purchase programs, shall not be counted for the purpose of 
calculating overtime.
  The legislation is not intended to alter or to undermine in any way 
any other existing protection afforded to workers under the overtime 
provisions of the Fair Labor Standards Act. By the same token, income 
from stock option-type programs that is already exempt from the 
overtime calculation is not intended to be affected by this 
legislation. That income remains exempt.
  Stock programs vary widely in their structure. This legislation is 
not intended to impose a single structure on such programs but has been 
broadly crafted to try to accommodate their variety. Consequently, the 
bill is solid with regard to certain definitions and implementation 
issues, and broad regulatory authority has been given to the Department 
of Labor to implement the legislation.
  The legislation requires that employees must be informed of the terms 
and conditions of any grants made to employees and that the employees 
must be able to voluntarily exercise any grant or right offered by the 
employer. The intent of these provisions is to ensure that employees 
are able to knowledgeably and freely determine whether they wish to 
participate in the program before they are required to do so and that 
they are able to knowledgeably and freely exercise such rights and 
options as they are afforded within the program. Employees must have a 
basis for assessing the value and the risk inherent in the choices they 
face.
  This legislation provides that employers may sell stock options or 
stock appreciation rights to employees at a discounted rate but that 
the discount may not be greater than 15 percent of the market value of 
the stock. This provision applies equally to closely held companies as 
well as publicly traded companies. Necessarily then stock appraisals by 
closely held companies may become subject to review.

                              {time}  1300

  The legislation provides that there must be at least a 6-month period 
between the grant of stock option or stock appreciation right and the 
date on which that right is exercisable. This requirement is waived in 
cases involving an employee's death, disability, retirement, or a 
change in corporate ownership or in other circumstances permitted by 
regulation.
  The limitation on stock discounts and the 6-month holding period, 
taken together, reflect the intention that some level of risk be 
assumed by employees in order that this legislation does not serve as 
an incentive for employers to convert wages to stock options as a means 
of evading overtime.
  Where an employee separates from employment with an employer, whether 
voluntarily or involuntarily, overtime is no longer an issue. In my 
view, it is, therefore, wholly appropriate for the 6-month holding 
period requirement to be waived in such instances.
  Finally, while many refer to the 6-month period as a vesting period, 
the use of the term vesting is not accurate. The only requirement 
imposed by this legislation is that an employee may not exercise a 
grant for at least 6 months.
  This legislation provides that an employer may not condition the 
offer of a stock program based on an employee's future performance 
unless such an offer is made to all employees in a facility or in a 
business unit consisting of at least 10 employees.
  An exception to this rule is provided to permit employers to 
condition offers upon length of service or minimum schedule of hours or 
days of work. The purpose of the exception is to permit employers to 
distinguish between part-time and full-time employees or between 
employees on temporary or probationary status and those on permanent 
status.
  The purpose is not to permit employers to target offers predicted on 
future performance to a single employee or to require employees to work 
overtime as a condition of participation.
  Likewise, the term business unit is intended to be meaningful. 
Assuming an offer is made on less than a facilitywide basis, an 
employer may not make an offer that is conditioned on future 
performance if that offer excludes some employees within a business 
unit who are otherwise eligible under the grant's terms, nor may an 
employer make such an offer arbitrarily to some employees without 
regard to their duties.
  As is generally the case under current law with regard to performance 
bonuses, an employer may offer program participation to individual 
employees based upon the employee's past performance. The intent is to 
enable the employers to reward employees for past service. This 
provision is not intended to undermine or supersede limitations 
applicable to grants that are conditioned upon future performance.
  Stock-option programs are new avenues for the front-line worker; 
however, the right to overtime remains protected by the Fair Labor 
Standards Act for the same group of employees.
  The overtime law plays a more important role in the daily lives of 
Americans than any other provision of labor law. It guarantees that 
workers will be fairly compensated when they are required to work 
excessive hours. It creates more job opportunities for workers. It 
ensures that workers will have enough time away from work to meet 
family and personal responsibilities. As women enter the workforce in 
increasing numbers, the overtime law has become even more vital to the 
health of American families.
  This legislation is necessary to accommodate the increasing 
participation of rank and file workers in stock programs. This 
legislation is not intended to otherwise weaken or to diminish the 
vital protection afforded workers under the FLSA and should be 
interpreted in the manner that is consistent with the intent and 
remedial purposes of the Fair Labor Standards Act.
  Mr. Speaker, I reserve the balance of my time.
  Mr. GOODLING. Mr. Speaker, I yield 4 minutes to the gentleman from 
California (Mr. Cunningham) who has worked tirelessly to bring this 
legislation to the floor.
  Mr. CUNNINGHAM. Mr. Speaker, as a lead House sponsor of H.R. 4182, I 
rise in strong support today of this identical Senate counterpart, S. 
2323. Originally, we came up with an idea based on the 1938 language, 
and thanks to the gentleman from Pennsylvania (Mr. Goodling) and the 
gentleman from North Carolina (Mr. Ballenger), the subcommittee 
chairman, and the ranking minority member, they had hearings with an 
attempt to match this not only with the Senate, but with the Department 
of Labor and with the White House in a very bipartisan way.
  Mr. Speaker, I think the outcome in the Senate of 95 to 0 vote shows 
the work that went forward on this bill, not only from Republicans but 
Democrats, the White House and the Labor Department as well.
  Why would we do this? Well, when the 1938 legislation first came 
about, they did not know that every day you pick up a newspaper that 
there is jobs wanted in there that offer stock options; whether it is 
medical benefits;

[[Page H2444]]

whether it is stock options or safety programs within the workplace, 
workers look at these things when they select those jobs to help their 
families. This bill provides for that.
  This will affect over 65 million Americans, union, nonunion, private 
individuals, public individuals. They want a piece of the rock, and I 
laud those individuals who have helped with this.
  Profits from stock options have been taken to account for too long, 
Mr. Speaker, and I want to thank personally the gentleman from 
California (Mr. Kuykendall); the gentleman from Virginia (Mr. Davis); 
the gentleman from California (Mr. Ose); the gentleman from California 
(Mr. Ballenger), chairman of the committee; the gentleman from Virginia 
(Mr. Moran); on the Democrat side, the gentleman from California (Mr. 
Dooley); the gentleman from Indiana (Mr. Roemer); the gentlewoman from 
California (Ms. Eshoo). And I say to the gentleman from New York (Mr. 
Owens) there is not but a handful of issues that we agree on in a year, 
but this is one where we come together in support of it. I would like 
to thank the gentleman as well.
  Mr. Speaker, I want to also thank Senator McConnell on the Senate 
side that drove this. In an election year, it is not important who 
takes credit for this thing, it is the workers and the families that 
benefit from this bill. I want to thank those individuals. This will 
help protect the dot-coms of America.
  Another issue is where for example, the biotechs, we have had to 
bring in Ph.D.s for biotech industries from other countries. I think 
that is a crime to where our education system does not provide for our 
people to take those jobs, Americans to take those workers, but yet 
when they brought in other doctors and Ph.D.s, there is a group that 
wanted to tax that as real income, because they did not have the cash 
flow to do that, it prohibited those companies from helping with 
medical research.
  This is a good bill, Mr. Speaker, a lot of good people worked on it 
on both sides of the aisle, the White House, and with the Department of 
Labor.
  Mr. Speaker, I want to specifically thank the gentleman from 
California (Mr. Kuykendall), for his effort in this; the gentleman from 
North Carolina (Mr. Ballenger), who worked tirelessly on this, and the 
gentleman from California (Mr. Rogan) and the gentleman from California 
(Mr. Bilbray), my seatmate down in San Diego.
                                   Washington, DC, April 27, 2000.
     Hon. Randy ``Duke'' Cunningham,
     House of Representatives,
     Rayburn House Office Building, Washington, DC.
       Dear Representative Cunningham: The National Association of 
     Manufacturers (NAM) is the nation's largest, broad-based 
     industrial trade group. Our membership includes more than 
     14,000 companies and subsidiaries, including approximately 
     10,000 small manufacturers and 350 member associations, 
     located in every state. On behalf of our member companies, we 
     ask you to cosponsor and support H.R. 4182, the Worker 
     Economic Opportunity Act. H.R. 4182 is a bipartisan bill, 
     sponsored by Representatives Cunningham (R-CA), Jim Moran (D-
     VA), Cass Ballenger (R-NC), Tim Roemer (D-IN) and many more 
     of their colleagues, which simply ensures that non-exempt 
     (hourly) workers can continue to receive stock options and 
     other equity-participation programs.
       H.R. 4182 is needed because of a February 1999 compliance 
     letter by the Department of Labor's (DOL) Wage and Hour 
     Division that placed stock options and other equity-
     participation programs for hourly workers in jeopardy. It 
     required employers to recalculate overtime pay based on 
     profits realized when an employee exercises the stock 
     options. In response to the letter, many companies have 
     already put their programs on hold until there is legislative 
     clarification. If hourly employees are to continue to receive 
     these options, the House needs to act swiftly. This 
     bipartisan bill has already passed the Senate by a 95-0 
     margin and enjoys the strong support of the Department of 
     Labor.
       On behalf of our members and their employees, the NAM 
     thanks you in advance for your support of H.R. 4182, The 
     Worker Economic Opportunity Act.
           Sincerely,
     Patrick J. Cleary.
                                  ____

                                            Union of Needletrades,


                             Industrial and Textile Employees,

                                 Rochester, NY, February 22, 2000.
       To Whom It May Concern: I am writing on behalf of UNITE and 
     its approximately 5,300 United States bargaining unit 
     employees covered by a contract with Xerox Corporation. It is 
     our understanding that Congress is currently considering 
     legislation to clarify the Fair Labor Standards Act (FLSA) 
     treatment of stock options and other forms of stock grants in 
     computing overtime for non-exempt workers. Xerox' UNITE 
     chapter would strongly urge Congress to pass legislation 
     exempting stock options and other forms of stock grants from 
     the definition of the regular rate for the purpose of 
     calculating overtime.
       It is only recently that Xerox has made bargaining unit 
     employees eligible to receive both stock options and stock 
     grants. Without a clarification to the FLSA, we are afraid 
     Xerox may not offer stock options or other forms of stock 
     grants to bargaining unit employees in the future. In 
     addition, without such a change in the law if options are 
     granted there could be tremendous differentials in the amount 
     of overtime each individual employee receives based on what 
     he or she decides, to exercise an option or sell stock. 
     However, our position that stock options should be exempt 
     from the regular rate for purposes of overtime in no way 
     diminishes our position that bargaining unit employees must 
     have the right to receive overtime pay for actual hours 
     worked.
       As we begin the 21st century, UNITE hopes more companies 
     will begin to provide all their employees with stock options 
     and other forms of stock, it is a great way to assure that 
     when the company does well the employees share the reward 
     through employee ownership. Thank you for your consideration 
     of this matter.
           Sincerely,
                                                Gary J. Bonadonna,
     Director, International Vice President.
                                  ____

                                    Association of Private Pension


                                            and Welfare Plans,

                                    Washington, DC, April 19, 2000
     Hon. J. C. Watts,
     Chairman, House Republican Conference,
     Longworth House Office Building, Washington, DC.
       Dear Representative Watts: I am writing on behalf of the 
     Association of Private Pension and Welfare Plans (APPWP--The 
     Benefits Association) to ask you to co-sponsor and support 
     H.R. 4182, the Worker Economic Opportunity Act, a bipartisan 
     bill to ensure that rank and file employees continue to 
     benefit from stock ownership programs. A companion bill (S. 
     2323) has already passed the Senate by a 95 to 0 vote and the 
     legislation enjoys the support of the Clinton Administration.
       APPWP is a public policy organization representing 
     principally Fortune 500 companies and other organizations 
     that assist employers of all sizes in providing benefits to 
     employees. Collectively, APPAP's members either sponsor 
     directly or provide services to employees benefit plans that 
     cover more than 100 million Americans.
       Many stock option and stock participation plans, which 
     extend the benefits of equity ownership to working Americans 
     at all income levels, are in jeopardy due to an opinion 
     letter issued by the Department of Labor (DOL) in February 
     1999. The opinion letter stated that the Fair Labor Standards 
     Act (FLSA) requires any stock option profits earned by a non-
     exempt employee to be included in that employee's regular 
     rate of pay for purposes of calculating overtime. The 
     practical result of this unexpected ruling is that employers 
     will feel compelled to exclude their non-exempt employees 
     from broad-based stock ownership plans or not offer such 
     plans at all. To its credit, the DOL recognizes that this 
     result is not beneficial to workers but has stated that only 
     legislative action can reverse the ruling. H.R. 4182, 
     introduced by Representatives ``Duke'' Cunningham (R-CA), Jim 
     Moran (D-VA), and Cass Ballenger (R-NC), is the product of 
     bipartisan discussions and agreement with the DOL and 
     provides the necessary revisions to the FLSA.
       APPWP believes that broad-based stock ownership plans 
     provide important benefits to American workers. Such plans 
     make workers corporate owners, can serve as a significant 
     vehicle for wealth accumulation and enhance retirement 
     security. As the attached fact sheet shows, stock ownership 
     and its benefits are spreading to all levels of the workforce 
     and across the entire spectrum of American industry. Despite 
     these positive developments, many employers are now caught in 
     the quandary of how, or even whether, to proceed with 
     extending equity ownership to rank-and-file employees. 
     Therefore, quick passage of H.R. 4182 is necessary. Your 
     commitment to join 37 other House members as a co-sponsor of 
     H.R. 4182 will help achieve this goal and ensure that non-
     exempt employees will continue to be eligible for stock 
     ownership programs.
       Thank you for your consideration of this important matter. 
     If we can provide more information or answer any questions 
     you may have, please contact James Deleplane, APPWP's Vice 
     President, Retirement Policy, at [email protected] or 
     (202) 289-6700.
           Sincerely,
                                                   James A. Klein,
                                                        President.

[[Page H2445]]

     Stock Option Bill Unanimously Approved by Senate; LPA-Backed 
                       Legislation Moves to House


 Bipartisan Bill Backed by Labor Department Corrects Law Discouraging 
    Employers from Providing Stock, Stock Option Programs to Hourly 
                               Employees

       April 12, 2000--Today, LPA praised the Senate's passage of 
     the Worker Economic Opportunity Act (S. 2323), bipartisan 
     legislation that would amend the Fair Labor Standards Act of 
     1938 (FLSA) to ensure that employers can continue to offer 
     stock options to non-exempt employees without fear of 
     violating overtime requirements. Many stock and stock option 
     programs had been placed on hold when companies learned last 
     December about a potential conflict with the FLSA. That 
     conflict would require overtime payments to be calculated 
     retroactively based on profits earned through stock option 
     programs.
       According to Jeff McGuiness, President of LPA, ``We are 
     very pleased that the Senate has come to the rescue of tens 
     of thousands of working Americans who receive stock and stock 
     options from their employers. We applaud its effort to ensure 
     that companies will be able to continue to offer broad-based 
     stock option programs. Because proxy season is upon us, we 
     hope the House will act quickly on this important bill so 
     that stock programs can be resumed.'' Labor Secretary Alexis 
     Herman has indicated that she will strongly recommend that 
     the President sign the bill if it reaches his desk.
       Senators Mitch McConnell (R-KY) and Chris Dodd (D-CT) 
     introduced S. 2323 in March. Rep. Duke Cunningham (R-CA) has 
     introduced an identical bill (H.R. 4182) in the House.
       The need for legislation became apparent after the 
     Department of Labor's Wage and Hour Division advised an 
     employer to include employees' stock option profits as part 
     of base pay for the purposes of calculating overtime. The 
     additional administrative burden imposed by such calculations 
     and the liability arising from making them incorrectly has 
     resulted in a large number of companies suspending future 
     employee equity programs.
       LPA is a public policy advocacy organization representing 
     human resource executives of more than 200 leading companies 
     doing business in the United States, many of whom give stock 
     options to hourly employees. Collectively, LPA members, many 
     of whom have substantial numbers of employees represented by 
     labor unions, employ more than 12 percent of the private 
     sector workforce in the United States.
                                  ____

                                               Chamber of Commerce


                              of the United States of America,

                                      Washington, DC, May 2, 2000.
     Hon. Randy ``Duke'' Cunningham,
     Rayburn House Office Building,
     Washington, DC.
       Dear Representative Cunningham: I am writing to commend you 
     on your leadership role in bringing to the floor of the House 
     S. 2323, the Worker Economic Opportunity Act. As you know, 
     this bill passed the Senate by a vote of 95-0 in April, and 
     is identical to H.R. 4182, which you introduced along with 
     seven other original co-sponsors from both sides of the 
     aisle. The Chamber strongly supports this bipartisan 
     legislation, which will help millions of hourly workers 
     retain or obtain stock options.
       Last year, the U.S. Department of Labor issued a letter 
     ruling stating that companies providing stock options to 
     their employees must include the value of those options in 
     the base rate of pay for hourly workers. Employers must then 
     recalculate overtime pay over the period of time between the 
     granting and exercise of the options. This costly and 
     administratively complex process will cause many employers to 
     cease offering stock options and similar employee equity 
     programs to their nonexempt workers.
       Clearly, the Fair Labor Standards Act must be modernized to 
     reflect the fact that many of today's hourly workers receive 
     stock options. For this reason, the Chamber strongly supports 
     S. 2323, legislation that would exempt stock options and 
     similar programs from the regular rate of pay for nonexempt 
     workers. This carefully crafted legislation will provide 
     certainty to employers who want to increase employee 
     ownership and equity building by offering stock options and 
     similar programs to their hourly workers. The bill is broadly 
     supported by members from both sides of the ideological 
     spectrum, as well as the U.S. Department of Labor.
       We urge prompt enactment on S. 2323, which will help 
     millions of American workers build equity in the companies 
     for which they work.
           Sincerely,
     R. Bruce Josten.
                                  ____



                                 The ERISA Industry Committee,

                                      Washington, DC, May 1, 2000.
       Dear Representative: The ERISA Industry Committee (ERIC) 
     strongly urges you to support H.R. 4182, the ``Worker 
     Economic Opportunity Act.'' H.R. 4182 is expected to come 
     before the House for a vote during the week of May 1. Timely 
     enactment of this legislation is critical to the continued 
     viability of broad-based stock options and other similar 
     programs that provide employees with equity ownership in the 
     companies for which they work.
       Introduced April 5 by Representative Randy ``Duke'' 
     Cunningham, the ``Worker Economic Opportunity Act'' enjoys 
     strong bipartisan and bicameral support. The bill is the 
     result of a cooperative effort between congressional leaders, 
     the Department of Labor, and the business community. The 
     Senate unanimously passed its companion to H.R. 4182 on April 
     12.
       Stock options increasingly are available to a broad range 
     of employees, not just executives. A recent survey by William 
     M. Mercer, Inc., reports a better than twofold increase since 
     1993 in the percentage of major industrial and service 
     corporations that have a broad-based stock option plan.
       In spite of the growing enthusiasm for employee equity 
     ownership among employers and employees, an advisory letter 
     interpreting current law issued by the Department of Labor's 
     Wage and Hour division has effectively stopped this movement 
     in its tracks.
       According to the Department's interpretation of the Fair 
     Labor Standards Act (FLSA) of 1938, and gains from the 
     exercise of stock options recognized by rank and file workers 
     must be included in their ``regular rate of pay'' for 
     purposes of computing overtime wages. Thus, in order to 
     comply with the Wage and Hour Division's interpretation of 
     the FLSA, employers would be required to track stock options 
     granted to rank and file employees and recalculate their 
     overtime payments once the options have been exercised.
       No rational employer will subject itself to this 
     impracticable burden. As a result, rank and file workers will 
     be denied the valued opportunity to become a stakeholder in 
     their employer's future.
       H.R. 4182 is narrowly tailored to directly address the 
     issues raised by the Wage and Hour Division's advisory letter 
     without compromising any long-standing worker protections 
     under FLSA. Most important, this legislation will benefit 
     millions of working Americans by facilitating the continued 
     expansion of equity-based compensation programs. It should be 
     enacted without delay.
       Thank you for considering our views. Please feel free to 
     call on us if you have any questions or need additional 
     information.
           Very truly yours,
                                                  Mark J. Ugoretz,
                                                        President.
                                            Information Technology


                                             Industry Council,

                                      Washington, DC, May 2, 2000.
     Hon. Randy Cunningham,
     House of Representatives,
     Washington, DC.
       Dear Congressman Cunningham: I am writing to thank you for 
     your leadership during House consideration of S. 2323, the 
     Worker Economic Opportunity Act. I would also like to let you 
     know that ITI anticipates making the vote on final passage of 
     S. 2323 a ``key vote'' for our 106th Congress High-Tech 
     Voting Guide.
       ITI is the association of leading U.S. providers of 
     information technology products and services. It advocates 
     growing the economy through innovation and supports free-
     market policies. ITI members had worldwide revenue of more 
     than $440 billion in 1998 and employ more than 1.2 million 
     people in the United States. The High-Tech Voting Guide is 
     used by ITI to measure Members of Congress' support for the 
     information technology industry and policies that ensure the 
     success of the digital economy. At the end of the 106th 
     Congress, key votes will be compiled and analyzed to assign a 
     ``score'' to every Member of Congress.
       We believe that passage of this legislation is an important 
     piece in ensuring the future growth of our industry and the 
     nation's economy. As you know, today more and more working 
     Americans worker are receiving stock options. The Worker 
     Economic Opportunity Act updates the Fair Labor Standards Act 
     to guarantee that rank-and-file employees and management can 
     share in their employer's economic well being in the same 
     manner.
       We look forward to working with you on other issues 
     important to the information technology industry.
           Best regards,
                                                     Rhett Dawson,
                                                        President.

  Mr. OWENS. Mr. Speaker, I yield 2 minutes to the gentleman from 
California (Mr. Dooley).
  Mr. DOOLEY of California. Mr. Speaker, I rise today in support of 
H.R. 4182, a bipartisan effort to address a problem that could impede 
advancements in many sectors of our economy.
  In many ways this legislation I think is a reflection of the 
transition our economy is making from an industrial-based economy to an 
information-based economy. We are seeing some of the most rapid growth 
in our economy now in this information sector, where a lot of those 
companies are making great efforts to recruit talent and personnel by 
offering them a stake in the company. By ensuring that stock options 
can be available not only to management, but to employees, we are going 
to ensure that that employee will have the opportunity to benefit from 
the technology and the product development that is adding so much 
wealth to our entire economy.
  I am real pleased that this legislation will certainly benefit not 
only the

[[Page H2446]]

technology sector, but also a lot of other companies on the more 
manufacturing side of things, who are seeing some examples of how they 
too can reach out to make their employees more a part of their efforts 
to move forward.
  Mr. Speaker, I just want to join the chairman and the ranking member 
in their efforts in bringing this bill to the floor, and thank all of 
the efforts of the administration and other Members that have joined in 
support of this legislation.
  Mr. GOODLING. Mr. Speaker, I yield 2 minutes to the gentleman from 
North Carolina (Mr. Ballenger), the subcommittee chair responsible for 
this legislation.
  Mr. BALLENGER. Mr. Speaker, I am pleased today to rise in support of 
this act, a bipartisan bill to protect the stock option programs for 
rank and file employees.
  Stock option programs can be configured in a variety of ways and are 
referred to by different names, but all the programs share similar 
objectives, to reward employees, to provide ownership in the company, 
and to attract and maintain a motivated workforce.
  In testimony before my Subcommittee on Workforce Protections earlier 
this month, witnesses discussed how stock ownership programs are now 
available to more and more employees. In the past, such programs were 
used to reward executives, top management and other key employees. 
However, there has been a dramatic increase in the past several years 
in the number of companies offering broad-based employee ownership 
plans to rank and file employees.
  The Department of Labor's recent interpretation saying that stock 
options may be part of an employee's ``regular rate,'' threatened to 
undermine the ability and willingness of employers to make stock 
options available to their own nonexempt employees. Ms. Abigail Rosa, 
an employee who testified at the hearing, expressed concern that the 
Department of Labor's interpretation of the law would force companies 
to do away with stock option programs for employees who are covered by 
the overtime law.
  Allowing hard-working rank and file employees to share in the growth 
of their companies is good for morale, good for families, and good for 
the country. I am pleased that we were able to work together to fashion 
a bill that updates the 1938 labor law. We have a bill that fosters 
stock option plans and has the FLSA taking a baby step into the 21st 
century.
  This bill represents the hard work and attention of many Senators and 
Members of the House on both sides of the aisle, as well as the 
Department of Labor, and I urge my colleagues to vote for this 
legislation.
  Mr. OWENS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I would like to express my gratitude to the gentlemen on 
the other aisle for their cooperation in working together on this piece 
of legislation.
  I think the bipartisan cooperation of this legislation shows that 
both parties are willing to go into the rest of this age of information 
and to continue on to what I call the cyber-civilization and make the 
necessary adjustments to various factors in our economy. But I think it 
is important to note that the gentleman from California (Mr. 
Cunningham) said that it is a crime that large numbers of foreign 
workers are being imported and that they will be occupying these high-
paying jobs, they will be getting these stock options, and large 
numbers of our own workforce will be denied the opportunity because 
they do not have the proper education and training. So at a time when 
our economy is leaping ahead and there is unprecedented prosperity, and 
we heard recently that the budget surplus is going up since we were on 
recess and came back, the budget surplus is going up, I think they 
expect about $200 billion surplus this year or more, and over the next 
10 years you may have a $2 trillion surplus, it is a crime that we do 
not have the kind of education system which will develop and train the 
workers who can take the jobs that are paying so well that they offer 
stock options in addition to regular salaries.
  This great budget surplus that we anticipate, if we were only to take 
10 percent of it for education, just 10 percent, we could deal with 
these 21st century problems of large numbers of vacancies in industries 
which require highly educated workers. Just 10 percent. I would say 5 
percent for the all-important activity of school construction, school 
repairs, various things related to school infrastructure, because part 
of the training process requires that you have the facilities and you 
have the equipment.
  There is a great need for capital investment in our schools in order 
to get the workforce trained who would be able to take advantage of 
such lucrative items as stock options, as well as higher paying jobs. 
Take 5 percent for physical infrastructure and deal with the problem 
that the National Education Association has cited as requiring $254 
billion. Their survey, their report, shows that we need $254 billion to 
bring the infrastructure of the public school systems up to a level 
where they can take care of the present population. We are not talking 
about long-term enrollment projections. $254 billion is needed at this 
point to do that.
  We have it. Money is not the problem. It is there in the surplus. I 
am not asking for that much, but I think we ought to reserve 10 percent 
for education. Five percent of $2 trillion would be like $20 billion. 
Five percent of $2 trillion would be $10 billion for construction and 
another $10 billion for other educational improvements. $20 billion a 
year reserved out of the projected surplus would take care of the 
problem of training workers so those workers could make the salaries 
and be eligible for the stock options we are talking about today.
  Mr. Speaker, I reserve the balance of my time.

                              {time}  1315

  Mr. OWENS. Mr. Speaker, I reserve the balance of my time.
  Mr. GOODLING. Mr. Speaker, I yield myself 30 seconds, just to 
indicate that if we in the Congress of the United States refuse to 
admit that billions and billions, hundreds of billions of dollars that 
we have spent on education from the Federal level have not closed the 
academic achievement gap one little tiny bit, and if we will not admit 
that those programs have failed, I do not care how much money we spend 
or how many more programs we introduce, failure is bound to follow as 
it has over the last 30 years.
  Mr. Speaker, I yield 3 minutes to the gentleman from Ohio (Mr. 
Boehner), the other subcommittee chair of the labor side of our 
committee.
  Mr. BOEHNER. Mr. Speaker, team-building is replacing bureaucracy 
throughout our country. That is really what we define today as the New 
Economy. New Economy companies are not just high-tech firms. They are 
companies that understand the value of their workforce as a team and 
organize themselves around team dynamics. That goes for companies that 
make sofas in southwestern Virginia, as well as companies that make 
Internet servers in Silicon Valley.
  A critical part of team-building is getting everyone on the same 
page, making sure everyone is motivated by common interests. By making 
the employee a shareholder, stock options also make them valued team 
members who see their interests and those of the rest of their team as 
one and the same.
  Our subcommittee held a hearing in March on another stock options-
related measure, one that I introduced last winter. One of the 
witnesses at our hearing was Timothy Byland, a sales employee with a 
San Diego-based Internet firm. Tim told our committee, and I quote, 
``Stock options are a way of sharing the gains of the business with 
those responsible for those gains. With stock options, I am part of 
that shared success. I am rewarded for the contributions I make and I 
am motivated to make them.''
  Stock options are part of almost any employee compensation package in 
the high-tech sector today, but increasing numbers of more established 
companies today are recognizing the value of helping employees become 
shareholders, giving them an unprecedented chance to share in their 
company's performance and profits. These companies range from 3M to 
Pepsi to Merrill Lynch, Citigroup and CBS.
  In short, Mr. Speaker, stock options just are not for the executive 
anymore. This is a new economy with new opportunities for workers at 
every step along the pay scale.

[[Page H2447]]

  The Labor Department's current policy on stock options for overtime 
employees illustrates how out of step Washington's rules are with the 
opportunities of the new economy. It is a throwback to the old days 
when stock options were available to almost no one except top 
executives.
  If fully implemented, this policy would be a dramatic step backward. 
It would needlessly discourage employers from granting stock options to 
hourly employees. It would limit opportunities for millions of workers 
to build greater wealth and, most importantly, retirement security.
  Swift passage of this measure today will remove a major Federal 
obstacle to the vision of a shareholder society shared by many members 
on both sides of the political aisle. It will also help to ensure 
continued movement toward a regulatory system that reflects the 
opportunities of the 21st century, and it will pave the way for us to 
address some other problems that current law poses for rank and file 
workers with stock options such as the IRS Tax Code dual taxation of 
nonqualified stock options.
  Mr. Speaker, I commend the gentleman from North Carolina (Mr. 
Ballenger), the gentleman from Pennsylvania (Mr. Goodling), and all of 
the Members who have worked on this bill, and I urge all of my 
colleagues to support it today.
  Mr. OWENS. Mr. Speaker, I yield 5 minutes to the gentleman from 
Virginia (Mr. Moran).
  Mr. MORAN of Virginia. Mr. Speaker, I thank the distinguished 
gentleman from New York for yielding me this time.
  Mr. Speaker, as the lead Democratic sponsor of the House version of 
this bill, the Stock Options Preservation Act, I want to thank all of 
the people in both Chambers and particularly on both sides of the aisle 
who put aside partisanship and traditional turf battles to get this 
important legislation passed into law. Particularly, I want to thank 
the gentleman from California (Mr. Cunningham) and the gentleman from 
Virginia (Mr. Davis), who reached out to Members on both sides of the 
aisle and worked with the administration to craft meaningful, 
substantive legislation. I wish we could do more of this. Not only is 
this a substantive piece of legislation, but it also ought to be an 
example of how we can do things when we can get together in a 
bipartisan way.
  What drove this, of course, was the understanding that in business, 
there is only one way to increase total compensation without raising 
inflation, and that is increasing productivity. Increased productivity 
means that workers can take home more and that businesses can earn 
more. It represents a win/win scenario and is directly responsible for 
the tremendous economic growth we have experienced over the last 8 
years. It has been unbelievable to be able to keep inflation down, 
while wages and benefits are going up; and, of course, it is all 
because of the increased productivity that we are seeing throughout our 
workforce.
  This is not just because of technological advances; it is achieved by 
improving the way in which employees work together. When employers and 
employees share the same goals, which is the success of a business, 
then productivity increases. Employees and employers both win, and of 
course the American economy wins too. That is why we have this enormous 
surplus. We are finally going to be able to stop paying down the debt, 
investing in education and research, and setting aside money for our 
retirement. It is all because we have this tremendously more productive 
economy.
  As one example, let me just share an example. One large company that 
distributed food products was losing millions of dollars each year 
because of very low recycling rates. So when it imprinted the logo for 
its stock option program on all of its products, the recycling rates 
went up to 99 percent; 99 percent got recycled. It was because the 
employees realized that recycling boxes and other waste products saved 
the company millions, that improved the bottom line and consequently, 
the stock price.
  No longer are stock options exclusively for the CEO and top 
management. Two-thirds of large companies give options to portions of 
their nonexecutive workforce, and over one-fourth of those companies 
give options to all of their employees.
  Stock options unite employees. Some businesses have stock tickers in 
their cafeterias. When the price is up, the employees all feel a sense 
of achievement. When it is down, they know they have more work to do. 
It overcomes divisions that oftentimes pit employees against employers, 
and that is better for all of us. It promotes a sense that employees 
from the CEO to the line worker in all parts of the country are part of 
the same team.
  This has been a long time in coming, but when we can work as a team 
and we can stop that gap between management and the workforce, we are 
all better off. This new economy should bring increased opportunities 
for all American workers. Stock option programs provide that 
opportunity by making workers into owners, investing them in the 
success of the business.
  The administration has endorsed this bill, the Senate passed it 
unanimously, and I strongly support it, and I trust it will pass 
unanimously. This is what the new economy should be all about and what 
the American workforce should be all about, being invested more in the 
product, in the efficiency and the effectiveness of the way in which we 
develop a product and not just in the process. We are all part of this 
economy, and workers need to be owners. Stock options are enabling us 
to achieve that.
  Again, I want to congratulate my colleague, the gentleman from 
Virginia (Mr. Davis), for being one of the first people to bring that 
up, and as I said, the gentleman from California (Mr. Cunningham) and 
the gentleman from Pennsylvania (Mr. Goodling), and all of the other 
speakers, and the gentleman from New York (Mr. Owens). It is both sides 
of the aisle, and this is the way we get things done, and this is very 
important for our economy.
  Mr. GOODLING. Mr. Speaker, I yield 1 minute to the distinguished 
gentleman from Texas (Mr. Sam Johnson), a member of the committee.
  Mr. SAM JOHNSON of Texas. Mr. Speaker, it is a rare occasion when we 
agree with the Department of Labor on legislation, but today we do. 
This bill will ensure that all employees, including rank and file 
workers, are allowed to participate in employee-provided stock option 
programs.
  With the advent of new technology and Internet companies that offer 
stock options to lure the best and the brightest, we must make sure 
that outdated laws do not stifle our growth and innovation.
  It is unfair to allow only top executives to participate in these 
stock options, excluding those who provide the labor for the same 
company, but on an hourly basis. I believe rank and file employees 
deserve the chance to make their fortune, secure their retirement, and 
increase opportunities for savings. The time is long overdue to help 
millions of workers and employees achieve the American dream.
  Mr. GOODLING. Mr. Speaker, I yield 1 minute to the gentleman from 
Virginia (Mr. Davis), another Member who worked hard on this 
legislation.
  (Mr. DAVIS of Virginia asked and was given permission to revise and 
extend his remarks.)
  Mr. DAVIS of Virginia. Mr. Speaker, the Department of Labor's opinion 
letter that was issued in February was really outrageous. The letter 
stated that the Fair Labor Standards Act did not allow the value of 
stock options to be excluded from the calculation of a nonexempt 
worker's overtime pay. Now, this had not been a problem in 20 years. 
When I was a corporate executive and we were giving stock options to 
nonexempt employees, we did it with the idea of they being owners of 
companies.
  The effect of this rule and regulation would have been that many 
workers who are salaried employees would no longer be eligible for 
stock options, that they were going to be deprived of their piece of 
the American dream: homeownership, to be able to build equity, and get 
the kind of income that exempt workers were routinely getting. That was 
the effect of that decision.
  Unfortunately, it created a lot of uncertainty within the business 
community. When this was brought to the attention of the higher-ups, 
Congress started to act and the administration moved into gear. We 
appreciate everybody working together now to bring

[[Page H2448]]

this legislation where it is today. I think the unanimous Senate vote, 
the fact that the administration is now going to sign legislation that 
will basically solve the problem that was created when they sent this 
letter out in February, is an indication that when we work together, we 
can solve these problems. I want to applaud all concerned.
  Mr. Speaker, I rise today to express my strong support for S. 2323, 
the Worker Economic Opportunity Act, a measure that exempts stock 
options, stock appreciation rights, and employee stock purchase 
programs from the calculation of overtime pay for certain employees 
under the Fair Labor Standards Act. As a sponsor of the House companion 
to this measure, introduced by my colleague, Congressman Cunningham, I 
cannot emphasize enough how important this legislation is to the 
continued growth of our nation's New Economy in the 21st Century.
  Over the past decade, our economy has boomed and the shortage of 
workers has intensified. Within this context, employers have used 
innovative ways to improve their workplaces and attract and retain 
workers. Offering new financial opportunities--such as stock options--
has allowed many companies to draw in good workers and at the same 
time, give employees an ownership right in the growth potential of a 
business. According to Fortune magazine, of the 100 best companies to 
work for, over one-third now offer stock options to all of their 
employees. And the National Center for Employee Ownership reports that 
over 80 percent of companies receiving venture capital financing 
provide options to both non-managerial and key management employees.
  The Department of Labor's opinion letter, issued in February, brought 
a great deal of uncertainty for employers and employees. The letter 
stated the Fair Labor Standards Act did not allow the value of stock 
options to be excluded from calculation of non-exempt worker's overtime 
pay, sparking serious concerns among those of us here in the House of 
Representatives and the other body as to how this ambiguity would 
affect economic growth. While the increased use of stock options is on 
the rise in traditional businesses, the high technology industry in 
particular owes a great deal of its growth to the issuance of stock 
options. The high technology industry has been a boon to our economy, 
creating more than 1 million high-paying jobs since 1993. In my home 
state of Virginia, some 12,100 technology-based firms call Virginia 
home, employing more than 370,000 workers and contributing more than 
$19.4 billion in wages.
  S. 2323 passed the Senate overwhelmingly with a vote of 95-0 last 
month and received the support of the Secretary of Labor, Alexis 
Herman. It will assure the protection of worker's stock options and 
ability to share in the success of a company without harming the 
computation of fair overtime pay. I want to commend Chairman Goodling, 
Chairman Ballenger, and Congressman Cunningham, for their leadership on 
this issue. I urge all of my colleagues to support this bill and save 
stock options for all workers.
  Mr. GOODLING. Mr. Speaker, I yield 2 minutes to the gentleman from 
California (Mr. Kuykendall).
  (Mr. KUYKENDALL asked and was given permission to revise and extend 
his remarks.)
  Mr. KUYKENDALL. Mr. Speaker, I rise today in strong support of S. 
2323, the Worker Opportunity Act. It is important legislation that 
encourages companies to grant stock options to all employees without 
triggering overtime calculations of the Fair Labor Standards Act. It is 
a much-needed update to reflect current realities in the workforce and 
our economy.
  Passed in 1938, the Fair Labor Standards Act guaranteed that hourly 
workers would receive fair pay for their work. It set strict 
requirements with respect to how overtime would be calculated. Over the 
years, overtime pay provisions have been amended to reflect changing 
realities of the workplace.
  For example, today current law excludes health and pension plans from 
overtime calculations as a means of encouraging employers to offer 
these important benefits to hourly employees. The United States economy 
has changed dramatically since 1938. It is an economy fueled by 
information technology and high-tech industries.
  Many companies today have tight capital constraints when starting 
out. Companies in this new economy attract potential employees by 
offering the promise to share future corporate profitability through 
stock options or other stock purchase plans; and for the first time, 
employees at all levels have a meaningful stake in the success of their 
businesses, creating other positive benefits. Imagine, the attitude 
that every employee is important to the success and welfare of their 
employer, and they can participate in the benefits of ownership are 
attitudes that our labor laws and policies should encourage.
  Unless changes are made to the Fair Labor Standards Act, most 
employers have indicated that they would exclude nonexempt employees 
from participation in stock purchase plans. According to the Employment 
Policy Foundation, the potential impact of the Department of Labor's 
interpretation is that 26 million Americans would stand to lose their 
stock options or other corporate equity. This is not a result intended 
by the Fair Labor Standards Act, by the Department of Labor, or by 
labor representatives. With passage of this bill today, we undertake 
the much needed revision to provide the Department of Labor with 
additional flexibility.
  I was pleased to be an original cosponsor of the House companion 
bill, and I am proud to support S. 2323 today, and I urge all of my 
colleagues to vote in favor of this important resolution.
  Mr. GOODLING. Mr. Speaker, I reserve the balance of my time.

                              {time}  1330

  Mr. OWENS. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, I think it is important to note that the language on 
both sides has been the same. The concepts have been the same. We 
basically agree that the Committee on Education and the Workforce 
understands the implication of the New Economy. We understand the kind 
of society we are going into. We understand that we have 
responsibilities for the workforce.
  Here we are exercising an important responsibility in terms of 
payment; that they should not be barred from enjoying the prosperity 
and should not in any way be kept from having stock options as other 
people do within the confines of a corporate enterprise. So we all 
agree.
  Mr. Speaker, I think we all ought to agree that the Committee on 
Education and the Workforce is primarily for the American workforce. We 
may have some international obligations sometime in the future; we may 
choose to assume those, but it is the American workforce that we would 
like to see take advantage of the opportunities that exist in our 
economy now.
  The sad thing about this bill, as the gentleman from California (Mr. 
Cunningham) pointed out, is that so many of our people who ought to be 
qualified for these jobs are not qualified, and we are going to be 
reaching out to the rest of the world to bring in workers who will not 
pay into the Social Security system, who will not contribute to the 
full economy of our Nation, while we are denying the opportunity to our 
own people because we have not developed a sufficient education system.
  So given the fact that we now have an opportunity with a huge 
surplus, 10 percent of that surplus ought to be devoted to revamping 
our education system. Revamping it in ways that do not interfere with 
local controls, starting with school construction, which is a capital 
expenditure. Buying computers is a capital expenditure. We can do the 
things that capital expenditures require, get out, and do not interfere 
with the operation of the schools.
  It is relevant to this discussion. At the end of the war in Vietnam, 
we did not jettison or throw away our military establishment. We did 
not say, look, they have lost a war to a Third World country; and, 
therefore, they have not succeeded so we will not continue to support 
our military. Just the opposite happened. We began to pour more and 
more resources more and more dollars into revamping and building up the 
world's greatest military system that existed.
  So the failure of our school systems up to now, the huge amount of 
problems that we have in terms of educational reform and improvement, 
should not prevent us from utilizing this window of opportunity to 
provide help for working families. Working families should be allowed 
to join the economy and enjoy the stock options, because they qualify 
for those good-paying jobs.
  Mr. Speaker, I yield back the balance of my time.
  Mr. GOODLING. Mr. Speaker, I yield back the balance of my time.

[[Page H2449]]

  The SPEAKER pro tempore (Mr. Quinn). The question is on the motion 
offered by the gentleman from Pennsylvania (Mr. Goodling) that the 
House suspend the rules and pass the Senate bill, S. 2323.
  The question was taken.
  Mr. GOODLING. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

                          ____________________