[Congressional Record Volume 148, Number 102 (Wednesday, July 24, 2002)]
[Senate]
[Pages S7304-S7305]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             STOCK OPTIONS

  Mr. WYDEN. Mr. President, I rise to outline briefly an approach with 
respect to the stock option issue that I am hopeful could bring 
together Senators of varying philosophies in both political parties.
  It seems as if every morning Americans wake up to yet another 
headline about the collapse of a major U.S. corporation. These failures 
have devastated the savings of millions of hard-working Americans, 
savings they were depending on for their retirement or to pay for their 
kids' college. When the smoke clears and the fallout settles, the issue 
of stock options invariably comes to the fore.
  I serve as chair of the Science and Technology Subcommittee, and I 
have spent a considerable amount of time analyzing the stock option 
issue. There is no question in my mind that some companies have abused 
stock options, using them as a vehicle for funneling large amounts of 
wealth to top executives. What is more, options have been granted in 
ways that fail to serve their intended purpose of aligning the 
interests of management with the long-term interests of the company.
  Instead, a number of these massive option grants have created 
perverse incentives, enabling top executives to get extraordinarily 
rich by pumping up a company's short-term share price. The tactics they 
use can jeopardize the company's long-term financial health, but by the 
time the long-term impact is felt, the executives invariably have 
cashed out and left the firm. When an executive develops a big personal 
stake in options, it can lead to a big conflict of interest. Too often 
the company's long-term interests take a backseat to that executive's 
desire for personal reasons to boost the short-term share price.
  When the betting is between massaging the numbers to ``manage'' 
quarterly profit projections and improving the quality of the business 
through such initiatives as long-term research and development 
investments, short-term profits and the value of executive stock 
options can be the odds-on favorite.
  The abuse of stock options in the executive suite should not be taken 
as an indictment of all stock options that are offered.
  I remain convinced that stock option plans, as long as they are broad 
based and have significant shareholder investment protection, can play 
a very important role in our economy. They can enable corporations to 
attract and retain good workers and top talent. They can motivate and 
increase productivity by giving employees a strong personal interest in 
the long-term success of the corporation.
  The program I would like to outline this afternoon is based on the 
premise that it is time for the Senate to act to stop abuses at the 
top, while not gutting options that are so vital to rank and file 
workers. This can best be done by restoring the link between the long-
term interests of the company and those of senior management and giving 
shareholders knowledge about control over the stock options of 
corporate leaders.
  So I hope we will be looking to discuss with Senators of both parties 
the differing philosophies on the stock option issue, and that we can 
come together as a Senate around reform based on three issues.
  First, the rule should increase shareholder influence and oversight 
with respect to grants of stock options to corporate officers and 
directors by requiring shareholder approval. This would help prevent 
the all-too-common ``I'll scratch your back if you scratch mine'' 
culture of clubby directors and top executives voting each other huge 
option packages with little or no shareholder input.
  Second, new rules should seek to ensure that stock options provide 
incentives for corporate officers and directors who act in the best 
long-term interests of their corporation, not incentives to stimulate 
short-term runups in stock prices. I believe the way to do this is to 
establish substantial vesting periods for options and holding periods 
for stock shares so that top executives do not have the ability to 
quickly cash out and jump ship.
  Specifically, I believe there needs to be a multitiered holding 
period. Directors and officers should be allowed to sell a modest 
proportion of shares, for example, to permit a degree of 
diversification; but for the large majority, they should have to wait a 
substantial period of time and they should be required to hold on to a 
portion of their stock until at least 6 months after leaving the 
company.
  Finally, a third requirement in the proposal I outline today would be 
new rules improving the transparency of stock option grants to 
directors and officers. It is critical that better and more frequent 
information be provided to shareholders and investors. They deserve 
more information than what is buried in the typical footnote. Stock 
option information ought to be reported quarterly, not just annually, 
and broken out into an easy-to-find section in each company's public 
SEC filings.
  In concluding, there have been two paths presented in the Senate in 
recent months with respect to the issue of stock options. Some now 
think the

[[Page S7305]]

problem is so severe that options should be pared back across the board 
and that Congress should take that action. Others say that business as 
usual should continue, that this is a problem that has affected just a 
handful of companies.
  The principles I have described today lay out a third path--a path 
that will ensure that broad-based stock options can continue to be a 
useful tool for deserving workers, shareholders, and the economy as a 
whole, while at the same time curbing abuses by those in the executive 
suites whose conduct is over the line.
  On the Science and Technology Subcommittee, which I chair, we have 
heard again and again how important these stock options are. There is 
no question that is correct. But I think it is also correct to say that 
the job of cleaning up corporate corruption is not going to be complete 
until Congress acts to curb the abuse of stock options.
  I look forward to working with my colleagues to put in place tough, 
new rules that will ensure that stock options remain broad based, but 
also address this issue of abuse that, unfortunately, has drawn options 
and their value into question.

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