[Congressional Record Volume 149, Number 64 (Thursday, May 1, 2003)]
[Senate]
[Pages S5644-S5645]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       THE BROAD-BASED STOCK OPTION PLAN TRANSPARENCY ACT OF 2003

  Mrs. BOXER. Mr. President, the Financial Accounting Standards Board, 
FASB, issued a tentative decision last week to mandate the expensing of 
stock options. As a result of this decision, the FASB will develop a 
mechanism for determining the cost of the options granted to employees 
and then force firms to deduct that cost from earnings in their 
financial statements.
  If finalized and enforced, expensing rules would kill broad-based 
options programs available to rank-and-file workers and punish 
companies that treat employees as partners in innovation rather than 
just as simple factors of production. But worst of all, it would 
misrepresent a firm's earnings because experts have said again and 
again that stock options cannot be priced accurately in the short term.
  The FASB received more than 250 comment letters during the period 
leading up to its current project on expensing stock options. Those 
letters presented a range of views on whether stock options constitute 
a cost that should be deducted from earnings. Many respected economists 
and accountants stated clearly that options should not be expensed. But 
expensing seems to be the only mechanism that the FASB is willing to 
consider for improving investor understanding of a firm's financial 
condition.
  The experts I have worked with believe that better, more detailed 
disclosure of stock option programs is the best mechanism for informing 
investors on those programs. And I do not believe that the FASB has 
adequately considered greater disclosure as an alternative to 
expensing. Greater disclosure would provide investors with the 
information they need without discouraging the use of stock option 
programs at innovative firms. At the very least, greater disclosure 
should be tried and evaluated prior to imposing a new, disruptive 
expensing regime.
  Stock option programs mean opportunity for workers across gender 
lines and wage scales in my state. In Silicon Valley, the median home 
price is $530,000. I know of single women working in Silicon Valley who 
have only been able to own a home because of the stock options their 
companies offer them. For small businesses in my state, stock options 
permit cash-

[[Page S5645]]

strapped businesses to attract and retain employees who want to share 
in the fruits of a growing company. The Woman's High Tech Coalition 
wrote to me last year:

       The education process on stock options needs to be complete 
     in its understanding of what this opportunity has meant to so 
     many women, in particular, in terms of their ability to lift 
     themselves and their children out of a cycle that can affect 
     several generations.

  Unfortunately, the process at the FASB is not designed to consider 
the broader economic benefits of stock-option programs in its rule-
making process. In failing to consider these benefits, the FASB's 
actions may end up doing more harm than good. And before we allow 
unaccountable officials to create new rules that effectively eliminate 
stock option programs, I strongly believe that we should be fully 
informed about the broader impact on workers and productivity. A 
recently published book, ``In the Company of Owners: The Truth About 
Stock Options (And Why Every Employee Should Have Them)'' includes 
extensive research showing that broad-based stock option plans, over 
the past 20 years, enhanced productivity, spurred capital formation, 
and enhanced shareholder value. We should carefully review the 
implications of any new policy on stock options programs before 
implementing them and hoping for positive results.
  As a result of FASB's decision and the refusal to consider 
alternatives to expensing, I am joining Senator Ensign in introducing 
legislation that calls for the Securities and Exchange Commission to 
undertake a thorough review of stock option programs and an assessment 
of the value of greater disclosure as an alternative to expensing. The 
bill sets a 3-year framework for evaluating this alternative to 
expensing during which the SEC could not enforce any new accounting 
standard on options that the FASB establishes.
  If the SEC's studies indicate that greater disclosure is not getting 
enough information to investors, then we can revisit the issue. But we 
should not let unelected, unaccountable FASB officials dictate policy 
through a rushed accounting standard. We must exercise our oversight 
function and carefully weigh alternatives that would be better for 
workers, investors, and the economy as a whole.

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