[Congressional Record Volume 150, Number 101 (Tuesday, July 20, 2004)]
[House]
[Pages H6001-H6022]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   STOCK OPTION ACCOUNTING REFORM ACT

  The SPEAKER pro tempore. Pursuant to House Resolution 725 and rule 
XVIII, the Chair declares the House in the Committee of the Whole House 
on the State of the Union for the consideration of the bill, H.R. 3574.
  The Chair designates the gentleman from Iowa (Mr. Latham) as chairman 
of the Committee of the Whole, and requests the gentleman from Texas 
(Mr. Bonilla) to assume the chair temporarily.

                              {time}  1156


                     In the Committee of the Whole

  Accordingly, the House resolved itself into the Committee of the 
Whole House on the State of the Union for the consideration of the bill 
(H.R. 3574) to require the mandatory expensing of stock options granted 
to executive officers, and for other purposes, with Mr. Bonilla 
(Chairman pro tempore) in the chair.
  The Clerk read the title of the bill.
  The CHAIRMAN pro tempore. Pursuant to the rule, the bill is 
considered as having been read the first time.
  Under the rule, the gentleman from Ohio (Mr. Oxley) and the gentleman 
from Pennsylvania (Mr. Kanjorski) each will control 30 minutes.
  The Chair recognizes the gentleman from Ohio (Mr. Oxley).
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  I would like to commend the gentleman from Louisiana (Mr. Baker), the 
chairman of the Subcommittee on Capital Markets, Insurance and 
Government Sponsored Enterprises, for his great leadership on the Stock 
Option Accounting Reform Act. His legislation strikes a significant 
compromise between those who believe that expensing options will help 
prevent some of the corporate governance abuses we have seen in the 
last few years and those who believe that expensing options will harm 
our most innovative companies, especially those in the high-tech 
industry, but not exclusive to them.
  Requiring publicly held companies to record as an expense options 
granted to the chief executive and the next four most highly 
compensated officers will help preserve broad-based employee stock 
options and, at the same time, addresses the corporate governance 
concerns voiced by advocates of expensing.
  Our most successful enterprises, many of which are small businesses 
and venture capital companies, would not be as successful as they are 
today but for their ability to attract and retain talented employees by 
giving them ownership in that endeavor. Ownership rewards due to one's 
personal contribution to a successful enterprise is the ethos of our 
capital markets system.
  While I have been, and continue to be, a strong supporter of FASB's 
independence, I am supportive of the gentleman from Louisiana's 
(Chairman Baker) legislation because I believe FASB's proposal, as 
currently drafted, would do harm to our most innovative companies. 
While I believe that FASB should be separated from the political 
process, and I have supported FASB's independence during all of my 20-
plus years here in the Congress, its authority is subject to review by 
the Congress.
  In extraordinary circumstances, and I believe this is one of those 
rare occasions, FASB's rule-making should be halted when its proposal 
will do harm to our economy, and I believe that is the case here. The 
Congress is ultimately responsible for the economic well-being of this 
country. Policies that could create an environment that is hostile to 
innovation and entrepreneurship must be reviewed and altered 
accordingly.
  Therefore, I urge all of my colleagues to support the gentleman from 
Louisiana's (Chairman Baker) important legislation.
  Mr. Chairman, I reserve the balance of my time.

                              {time}  1200

  Mr. KANJORSKI. Mr. Chairman, I yield myself 6 minutes.
  Mr. Chairman, we are unfortunately meeting today to consider the 
Stock Option Accounting Reform Act. This bill would begin the process 
of repealing the reforms we enacted in the historic Sarbanes-Oxley Act 
just 2 years ago. As I repeatedly noted during the Committee on 
Financial Services' consideration of these matters, deciding what 
should be accounted for and how it should be accounted for is the job 
of the Financial Accounting Standards Board, not the Congress.
  Nevertheless, I recognize the strong feelings and deep concerns 
expressed by the parties on the other side of this contentious issue. 
The accounting treatment of stock options has caused significant 
controversy for more than a decade and FASB's decision to revisit this 
matter has rekindled a fiery debate.
  Although I have great sympathy for those individuals in the high-tech 
community who have raised considerable reservations about the expensing 
of stock options and the effects on business operations and 
compensation plans, H.R. 3574 would interfere with FASB's independence. 
It could also undermine the credibility of financial reports.
  We need to work in Washington, particularly in the wake of recent 
accounting scandals, to improve the transparency of financial reporting 
statements in order to help average investors make better decisions. A 
decade ago, the Congress strong-armed FASB into abandoning an effort to 
adopt a rule requiring stock option expensing. We now know that this 
retreat helped contribute to a recent financial storm on Wall Street. 
In fact, a recent study by economists at Texas A&M found that companies 
where CEOs had options equal to 52 times their annual salary were 70 
percent more likely to have a restatement than similar-sized companies 
in similar industries where CEO had little option wealth.
  In considering this bill today, we may, therefore, ultimately allow 
history to repeat itself. We would for the first time also be making 
the Congress an appeals board for the development of accounting 
standards. Support in the business community for mandatory expensing 
has increased significantly in the wake of the recent tidal wave of 
accounting scandals. A Merrill Lynch study found more than 90 percent 
of institutional investors want stock options expensed. This view is 
shared by the American Institute of Certified Public Accountants, the 
Investment Company Institute, and the Council for Institutional 
Investors. Our largest accounting firms have also called for the 
expensing of stock options.
  In addition, nearly 600 companies have already voluntarily adopted or 
are in the process of adopting fair-value expensing of stock options. 
Respected corporations like Home Depot, General Motors, General 
Electric, Wal-Mart, Microsoft, and Amazon have all decided to treat 
stock options as expenses.

[[Page H6002]]

  In a recent letter to FASB, Citigroup emphasized its ``strong support 
for private sector standard setting'' and ``its opposition to 
congressional intervention on the accounting for stock options.''
  Furthermore, in recent proxy votes at IBM, Peoplesoft, Hewlett-
Packard, and Texas Instruments, the shareholders of these leading high-
tech companies have voted in favor of stock options expensing. 
Moreover, in May the shareholders of Intel approved a proposal asking 
the company to expense stock options. This proposal passed with 54 
percent of the 5.7 billion votes cast. To date, however, Intel's 
management has disregarded the decision of its stockholders.
  Numerous consumer groups, including the Consumer Federation of 
America, Consumers Union, and Consumer Action, are also supporting the 
expensing of stock options. They have determined that the legislation 
we are considering would deprive investors of comprehensive and 
transparent financial transactions. Many in the labor movement share 
these concerns. These entities include the AFL-CIO, the Teamsters, and 
AFSCME, among others. Each of these groups has called on us to reject 
H.R. 3574.
  Additionally, our Nation's leading financial regulators have 
previously made the case for options expensing and recently advised us 
to preserve FASB's independence. In a recent letter to me, SEC Chairman 
Donaldson notes his strong support for an independent and open 
standard-setting process for establishing accounting standards.
  At a congressional hearing in April, Federal Reserve Chairman Alan 
Greenspan said, ``I think the Congress would err in going forward and 
endeavoring to impede FASB,'' in its consideration of stock options 
expensing rule.
  Moreover, leaders on Capitol Hill have already opined on the need to 
protect FASB's independence. In a recent op-ed in the Wall Street 
Journal, the chairman of the Senate Banking Committee asserted that 
Congress should ``stay out of FASB's rulemaking, and let the experts do 
their job.'' Because many of his colleagues in the other body on both 
sides of the aisle agree with this assessment, this legislation seems 
unlikely to become law.
  In sum, Mr. Chairman, I agree with the assessments of my esteemed 
colleagues, leading regulators, reputable financial experts, concerned 
consumer groups, interested labor leaders, and a growing number in the 
business community regarding the need to protect FASB's independence.
  To strengthen investor confidence and promote the international 
convergence of corporate reporting standards, FASB must proceed with 
diligence, and without political interference, in its consideration of 
a rule proposal on the mandatory expensing of stock options. I urge my 
colleagues to reject H.R. 3574.
  Mr. OXLEY. Mr. Chairman, I ask unanimous consent that the gentleman 
from Louisiana (Mr. Baker) be permitted to control the remainder of my 
time for consideration of this bill.
  The CHAIRMAN. Is there objection to the request of the gentleman from 
Ohio?
  There was no objection.
  Mr. BAKER. Mr. Chairman, I yield 1 minute to the gentleman from 
Washington (Mr. Inslee).
  (Mr. INSLEE asked and was given permission to revise and extend his 
remarks.)
  Mr. INSLEE. Mr. Chairman, I speak in favor of this bill for the 
fundamental reason that this protects an extremely successful tenet of 
the American innovation economy. I look around my district and what I 
see is a collection of companies, 10, 20, 30 employees doing incredible 
things and frequently using stock options. These are companies which 
may be on the cusp of actually developing a cure for diabetes, a 
company with a couple dozen employees which may develop a cure for 
stroke, a company with a couple dozen employees that have a solution so 
you cannot see muzzle fire from our soldiers' rifles. These type of 
companies use this system to bring in talent, and bringing in talent is 
absolutely fundamental to the innovation economy of America.
  Stock options have been one of the most successful mechanisms to make 
sure that when someone has a good idea, they can marry it with good 
brains around them who can come in without a paycheck. Let us preserve 
and protect the ability to use stock options.
  Mr. KANJORSKI. Mr. Chairman, I reserve the balance of my time.
  Mr. BAKER. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, I wish to acknowledge at this time the leadership of 
the gentleman from Ohio (Chairman Oxley) on this most important and 
difficult matter. Over the course of the past months, the committee has 
engaged in numerous hearings and roundtables to discuss the 
advisability of FASB's recommendation and to craft the appropriate 
remedy given the committee's concerns. The chairman at all times has 
been insistent on a balanced analytical process to afford all 
stakeholders the ability to be heard.
  I certainly would also wish to extend my appreciation to the leader 
on the Democratic side, the gentlewoman from California (Ms. Pelosi); 
and the gentlewoman from California (Ms. Eshoo), who have been at the 
forefront of leading the charge from their perspective on what they 
both believe to be an important economic tool for job creation.
  Mr. Chairman, I reserve the balance of my time.
  Mr. KANJORSKI. Mr. Chairman, I yield 4 minutes to the gentlewoman 
from California (Ms. Eshoo), a chief sponsor of the bill.
  Ms. ESHOO. Mr. Chairman, I thank the gentleman from Pennsylvania (Mr. 
Kanjorski) for yielding me this time.
  I am very proud to be the lead Democratic sponsor of this bill. My 
partner, the gentleman from Louisiana (Mr. Baker), the gentleman from 
California (Mr. Dreier) before him, and colleagues from both sides of 
the aisle, this is a true bipartisan effort: over 100 cosponsors, 
including leadership from the Democratic side, our distinguished 
leader, the gentlewoman from California (Ms. Pelosi), as well as from 
the Republican side. This is not a partisan issue, nor should it be.
  What this debate is about is not simply the grays and the green eye 
shade issues of accounting. What stands front and center in this issue 
is the American economy and how we continue to spur it. There are three 
major ingredients that other countries around the world have come to 
understand because they have studied it, and it has been part of our 
success: venture capital, the protection of intellectual property, and 
stock options. Why stock options? Because it is a magnet that attracts 
workers to a company; and with that magnet it is stated, yes, we are 
willing to take a risk and make this company grow. And when we do, we 
will all share in the rewards. That is intrinsically American.
  Now, have there been people who have abused stock options at the top? 
Sadly, that was the case. And the Congress stepped in because the SEC 
needed us to step in. The SEC did not do what it was supposed to do, 
and the Sarbanes-Oxley legislation was passed. So in terms of the 
debate, leave the SEC alone, leave the FASB alone, we should not 
interfere, we should not step in, that case is absolutely blown by 
having adopted Sarbanes-Oxley.
  The FASB has put out an accounting standard. They understand that 
they have nothing to do with the economy, and they are proud of saying 
that. The Congress does have a responsibility for anything that 
impinges on our economy. There are institutional investors in this 
country that are not interested in individual stakes and shareholders. 
That is all right; it is the view that they hold.
  So this debate today, and make no mistake about it, listen carefully, 
this is about protecting a tool that has paid off for rank-and-file 
workers across the country. This is not only about high technology and 
biotechnology. In fact, most of the stock option holders' rank-and-file 
are outside of those two industries, and they represent 14.6 million 
workers in our country.
  Now why expense the people at the top? Because they come to their 
compensation package differently. Rank-and-file workers do not 
negotiate with a board of directors; the top five in the company do. 
This is balanced. This is important. This is essential. Do not wreck 
one of the most valuable tools that we have in our country today to 
expand our economy, to expand new businesses and to have a stake in the 
future of America. I urge my colleagues to support H.R. 3574.

[[Page H6003]]

  Mr. Chairman, I'm proud to be the lead Democratic sponsor of the 
Stock Option Accounting Reform Act, and thank Chairman Baker for his 
leadership, moving it through the Financial Services Committee with 
such strong support. The legislation is urgently needed to avert the 
implementation of new accounting rules that would have a disastrous 
impact on American companies, and more importantly, American workers.
  The Financial Accounting Standards Board (FASB) has long threatened 
to require stock options to be deducted from a company's earnings, and 
this bill would prevent FASB from implementing this requirement for 
many critical reasons. Mandatory expensing of stock options would have 
a terrible impact on companies that rely on options to recruit and 
retain the most talented employees. Without stock options, many of 
these companies--including some of the most successful high-tech and 
biotech firms--would not even exist today.
  Stock options have become associated with corporate scandals and 
excessive executive compensation, leading to a call for expensing as 
the ultimate prescription for these problems. But stock options were 
not the cause of the recent corporate accounting scandals, and 
eliminating stock options would do nothing to instill corporate 
responsibility or accountability. The crimes committed at Enron, Tyco, 
and other companies would not have been prevented if expensing was the 
accounting rule of the day.
  The Sarbanes-Oxley legislation, which I was proud to support, was 
passed to prevent future corporate swindles. If companies are forced to 
expense stock options, most will drop broad-based option plans because 
of the prospect of taking a huge and misleading charge against their 
bottom line in accounting statements.
  Make no mistake about it. Stock option plans or some other form of 
lucrative compensation for senior executives will undoubtedly continue 
to be offered. Consider this: Only a small portion of employee-held 
options--about 15 percent--are held by corporate management. 14.6 
million American workers--13 percent of private-sector workers 
nationwide--held stock options in 2002.
  It's ironic that many are calling for the expensing of stock options 
in order to reign in executive compensation, when expensing stock 
options would do little to accomplish this. Rather rank and file 
employees would be the ones to lose, because they don't get to 
negotiate with a Board of Directors for their compensation package.
  H.R. 3574 also answers many of the critics of stock options who 
maintain (wrongly) that this compensation is an ``executive perk'' and 
a tool to avoid reporting executive salaries. The Stock Option 
Accounting Reform Act requires companies to expense options granted to 
the CEO and the next four highest paid officers. Small businesses are 
exempted from this requirement and cannot be required to expense 
options for the 3 years following an initial public offering.
  The bill would also enact new disclosure rules for companies who 
offer stock options, requiring them to disclose additional information 
regarding share value dilution and other stock option-related 
information.
  Some have also argued that FASB's independence must be protected and 
accounting standards--like other technical rules--should not be set by 
Congress. While in general this is the case, there are many occasions 
when expert bodies fail to fully protect the public interest and it's 
incumbent on Congress to step in. For example, the Securities and 
Exchange Commission--an independent, expert agency--failed to 
adequately protect investors and the public from the corporate scandals 
of recent years: Congress stepped in to enact the reforms of Sarbanes-
Oxley.
  Recently, a ``determination on drug safety'' was made by the Food and 
Drug Administration which found that the morning-after birth control 
pill was not safe enough to approve for over-the-counter sale, despite 
ample evidence to the contrary. I would hope that if the FDA does not 
change its position on the morning-after pill, we will act to overturn 
this decision as well.
  Even the Chairman of FASB recently acknowledged that the Board has 
proceeded too quickly and the implementation of the new expensing rules 
may need to be delayed. H.R. 3574 would simply ensure that the rules 
are not implemented for at least a year, pending economic impact 
studies by the Commerce and Labor Departments.
  Given the radical change the new rules would establish and the 
potentially devastating impact on employee ownership programs, Congress 
has the responsibility to make sure that these rules are appropriate 
and implemented responsibly. I urge my colleagues to support this 
legislation and protect broad-based employee ownership programs.
  Mr. BAKER. Mr. Chairman, I yield 1 minute to the gentlewoman from 
California (Ms. Lofgren).
  Ms. LOFGREN. Mr. Chairman, the illusion that stock options only 
benefit fat-cat corporate executives is just that, an illusion. Fifty-
three percent of companies that offer stock option plans offer them to 
all employees. Within the tech sector, 88 percent offer them to all 
employees. With start-ups it is even more important. According to the 
National Venture Capital Association, more than 70 percent of venture-
backed companies award stock options to all employees.
  As my colleague, the gentlewoman from California (Ms. Eshoo), has 
noted, this is an essential component to the innovation economy that 
really is pulling the entire American economy forward, but that does 
not seem to matter to FASB.

                              {time}  1215

  When stock options that have a strike price of $40 are being traded 
at $18 and the FASB accounting system accounts for that as a valuable 
option, there is something wrong with the standards that they are 
using. We need to study this matter and to make sure that in our 
efforts to be clear, we do not destroy the tech economy.
  Mr. KANJORSKI. Mr. Chairman, I yield 3 minutes to the gentleman from 
Ohio (Mr. Gillmor).
  Mr. GILLMOR. I thank the gentleman for yielding time.
  Mr. Chairman, I rise today in strong opposition to this legislation 
and in support of the Kanjorski amendment which is going to be offered 
later.
  The real issue we are debating today is whether or not we in the 
House want to set a dangerous precedent and politicize the process of 
setting accounting standards. The Financial Accounting Standards rule 
does not in any way, despite the implication of some other statements, 
prevent the issuance of stock options. It just says you have to 
honestly tell the shareholders what their real cost is.
  If we pass this bill and prevent the SEC from adopting FASB's draft 
rule, American workers and other investors may invest their pensions 
and other retirement incomes in unprofitable companies because they 
will continue to be given misleading financial statements.
  Under our current accounting standards, companies are allowed to 
choose whether or not to expense stock options, and many have chosen 
not to report any expense of this compensation, even when they claim 
stock option expenses on their tax returns. Stock options are the only 
form of compensation that may be omitted from a corporation's financial 
statements. The issue is not whether these forms of compensation 
provide useful incentives, but whether all of them should be reflected 
honestly on company financial records as company expenses.
  Objective observers are virtually unanimous in calling for expensing 
of stock options. They include Federal Reserve Chairman Alan Greenspan, 
Treasury Secretary John Snow, SEC Chairman William Donaldson, Public 
Company Accounting Oversight Board Chairman William McDonough, former 
SEC Chairman Arthur Levitt, and investor Warren Buffett, who in a July 
6, 2004 editorial gave, quote, this bill's opponents an ``A'' for 
imagination and a flat-out ``F'' for logic.
  It is also supported by the Council of Institutional Investors, the 
Investment Company Institute, Financial Services Forum and the Consumer 
Federation of America. The FASB standards are about having honest and 
not misleading reporting to people who have invested in a company.
  I urge my colleagues to oppose this legislation.
  Mr. BAKER. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman from 
New York (Mr. Crowley).
  (Mr. CROWLEY asked and was given permission to revise and extend his 
remarks.)
  Mr. CROWLEY. I thank the gentleman from Louisiana for yielding me 
this time.
  Mr. Chairman, I rise in strong support of the Stock Option Accounting 
Reform Act, and I urge my colleagues on both sides of the aisle to 
support this bill without any damaging amendments. This legislation is 
a necessary response to proposed damaging regulations by the Financial 
Accounting Standards Board which threaten broad-based employee stock 
options. This bill will not cloud basic accounting principles as 
investors and analysts who are interested in adjusting an issuer's

[[Page H6004]]

income statements for the cost of stock options already have the 
necessary information available to them.
  This FASB rule will lead to greater confusion for investors as this 
rule actually allows corporate accountants to pick and choose their 
expensing methods instead of implementing a uniform standard.
  This FASB rule will effectively destroy broad-based stock option 
plans, plans that have spread real wealth creation among employees as 
opposed to the consolidation of wealth at the top of a corporate 
pyramid.
  The FASB rule hurts the ability of high-tech firms to recruit and 
retain good personnel as stock options were and still are used by 
start-up and venture capital firms to attract the talent that is needed 
when capital is sparse.
  Finally, FASB, by definition, does not take economic impacts into 
effect when issuing its regulations, meaning they did not take into 
consideration the negative effects of this bill when drafting this 
rule. This bill also actually allows for transparency at the top, the 
top five individuals of a corporation, those who are most at risk in 
putting a company in danger when they play around with stock options.
  Mr. Chairman, for all those reasons I urge my colleagues to support 
this balanced approach to the issue of stock options.
  Mr. KANJORSKI. Mr. Chairman, I yield 2\1/2\ minutes to the 
gentlewoman from Illinois (Ms. Schakowsky).
  (Ms. SCHAKOWSKY asked and was given permission to revise and extend 
her remarks.)
  Ms. SCHAKOWSKY. Mr. Chairman, I rise today to oppose H.R. 3574, the 
so-called Stock Option Accounting Reform Act. The bill will actually 
take away the power from the Financial Accounting Standards Board, an 
independent agency, to protect investors, pension holders and workers 
by requiring corporations to expense stock options.
  In the wake of Enron and other corporate scandals, this is the wrong 
message to be sending to all those workers and investors who lost their 
life savings and retirement security, and it is the wrong policy to 
pursue if we want to boost consumer confidence and improve our economy.
  We know from all the corporate scandals that have come to light that 
accurate and transparent accounting is vital to corporate 
accountability and shareholder confidence. Yet the accounting treatment 
of stock options allows corporations to continue to distort their true 
financial standing.
  Stock options make up 80 percent of compensation packages for 
corporate managers. In 2003, CEO pay at 350 major U.S. public companies 
averaged $8 million, with stock options as the largest component. 
Despite those facts, stock options are the only form of compensation 
that may be completely absent from corporate financial statements.
  H.R. 3574, a supposed compromise from the FASB rule, only counts 
stock options given to the top five executives, when calculated using 
what Warren Buffett describes as ``fuzzy math,'' in the bottom line but 
not those options given to all the other employees.
  The special accounting treatment of stock options which this bill 
would allow to continue has fueled abuses linked to excessive executive 
pay, inflated earnings, dishonest accounting and corporate misconduct. 
Nobel prize winner Joseph Stiglitz believes that the absence of stock 
option expensing requirements has ``played an important part in the 
spread of other forms of financial chicanery.''
  A report by a blue-ribbon panel of the Conference Board found that 
the current treatment of stock options has fostered a vicious cycle of 
increasing short-term pressures to manipulate earnings to bolster stock 
price so that those receiving options could cash in, take the money and 
run.
  FASB is currently working to address this problem, yet Congress with 
the passage of this bill will undercut its effort. I would suggest that 
we let FASB do its job and oppose this legislation that would eliminate 
the possibility of the transparency that stockholders and pension 
recipients need.
  Mr. Chairman, I rise today to oppose H.R. 3574, the so-called Stock 
Option Accounting Reform Act. This bill will take away Financial 
Accounting Standard's Bd., FASB's, an independent agency, power to 
protect investors, pension holders, and workers by requiring 
corporations to expense stock options. In the wake of Enron, and other 
corporate scandals, this is the wrong message to be sending to all 
those workers and investors who lost their lives' savings and 
retirement security, and it is the wrong policy to pursue if we want to 
boost consumer confidence and improve our economy.
  We know from all the corporate scandals that have come to light that 
accurate and transparent accounting is vital to corporate 
accountability and shareholder confidence. Yet, the accounting 
treatment of stock options allows corporations to continue to distort 
their true financial standing.
  Stock options make up 80 percent of compensation packages for 
corporate managers. In 2003, CEO pay at 350 major U.S. public companies 
averaged $8 million, with stock options as the largest component. 
Despite those facts, stock options are the only form of compensation 
that may be completely absent from corporate financial statements. H.R. 
3574, a supposed compromise from the FASB rule, only counts stock 
options given to the top five executives--when calculated using what 
Warren Buffett describes as ``fuzzy math''--in the bottom line, but not 
those options given to others.
  The special accounting treatment of stock options which this bill 
would allow to continue, has fueled abuses linked to excessive 
executive pay, inflated earnings, dishonest accounting, and corporate 
misconduct. Nobel Prize winner, Joseph Stiglitz, believes that the 
absence of stock option expensing requirements has ``played an 
important part in the spread of other forms of financial chicanery'' 
where corporate energy and creativity was ``directed less and less into 
new products and services, and more and more into new ways of 
maximizing executives' gains at unwary investors' expense.'' A report 
by a blue-ribbon panel of the Conference Board found that the current 
treatment of stock options has fostered a vicious cycle of increasing 
short-term pressures to manipulate earnings to bolster stock price so 
that those receiving options could cash-in, take the money, and run.
  FASB is currently working to address this problem, yet Congress, with 
the passage of this bill, will undercut its effort. FASB's proposed 
rule would remove the perverse incentives to manipulate earnings and 
help bring transparency to corporate financial statements. FASB is 
trying to close an accounting loophole that has allowed corporations to 
understate executive compensation and distort the companies' financial 
standing. Investors and pension plan managers want the kind of accurate 
financial information that FASB's rule would provide: it would help 
them make informed investment decisions about retirement security. Let 
us let FASB do its job.
  Two years ago, when we passed the Sarbanes-Oxley Act, we recognized 
the need to protect the Financial Accounting Standards Board, or 
FASB's, independence for setting accounting standards. We knew then 
that if we wanted true corporate accountability, if we wanted to 
protect investors and pension holders, then we needed to make sure that 
an independent body was overseeing accounting standards to which 
corporations had to adhere, and FASB's independence became an important 
part of the Act. We knew that then, but how soon we forget. As 
Consumers Union states, ``Those reforms (to hold corporations 
accountable) will have proven to be all but meaningless if less than 
two years after they were enacted, Congress reneges on its promise and 
subjects the independent, standard-setting process to political 
interference.'' That is exactly what we will do--render meaningless our 
own reforms--if we pass H.R. 3574.
  As Alan Greenspan recently said, ``With respect to stock options, I 
think it would be a bad mistake for the Congress to impede FASB in this 
regard. And in this regard, as best I can judge, the FASB changes in 
recommendations with respect to accounting procedures strike me as 
correct, and it's not clear to me what the purpose of the Congress is 
in this particular procedure.'' It is not clear to me either. What is 
clear is that if this bill passes, we are telling investors, pension 
holders, and workers that Congress believes it is fine to keep them in 
the dark, and that corporations can continue to hide their true 
financial standing. I urge my colleagues to vote no on H.R. 3574.
  Mr. BAKER. Mr. Chairman, I yield 2\1/2\ minutes to the gentleman from 
Arizona (Mr. Shadegg), a member of the committee and an interested 
party in this most important issue.
  Mr. SHADEGG. Mr. Chairman, I thank the gentleman for yielding time 
and I rise in strong support of H.R. 3574, the Stock Option Accounting 
Reform Act.
  Let me make it very clear, this is not a technical issue which 
Congress should leave to FASB. This is not how do we account for 
something. Indeed, that issue presents itself here, and no

[[Page H6005]]

one can agree on how we should account for the expensing of stock 
options.
  But the issue that brings us here is not a technical FASB issue; the 
issue that brings us here is one that has great implications on public 
policy. That is, do we continue to incent companies to use stock 
options to give employees a stake in their company, which I believe all 
Americans want and is the key to our Nation's vibrant economy, or do we 
squelch that by allowing a technical rule to go into place forcing the 
expensing of all stock options the minute they are issued.
  I submit to my colleagues that it is FASB that is acting too fast. It 
is FASB that is acting imprudently and without taking the time to study 
this area closely. Indeed, there has been no study yet of the impact on 
our economy were we to suddenly jump forward and require the expensing 
of all stock options immediately. This economy is beginning to emerge 
from a recession and is getting stronger every day, but it is 
critically important that we allow America's companies to continue to 
give incentives to their employees.
  This is particularly true of start-ups. It may be that the big 
companies, those with billions of dollars in assets, can handle this 
requirement, but the little start-ups, the small companies that bring 
ingenuity to the marketplace and challenge the existing large companies 
in the market and our high-tech industry, have survived and indeed 
prospered by using stock options. They are confident that this will 
damage them immensely.
  Harvard professor William Sahlman has said, ``If the advocates of 
expensing win their small point and the spotlight on corporate America 
fades away as a result, I fear that we will end up having done nothing 
at all to prevent unscrupulous executives from yet again stealing their 
investors' money.''
  It is absolutely critical that we not allow FASB to treat this as a 
technical issue. There is not yet an agreed-upon best or even good 
method for calculating the value of stock options. Expensing will not 
make our corporate expenditures more clear or bring greater clarity to 
investors. It solves nothing.
  I urge my colleagues to oppose it because it will hurt start-ups and 
it will hurt high-tech companies.
  Mr. KANJORSKI. Mr. Chairman, I yield 3 minutes to the gentleman from 
Massachusetts (Mr. Frank), the ranking member of the Committee on 
Financial Services.
  Mr. FRANK of Massachusetts. Mr. Chairman, I appreciate the leadership 
the ranking member of our subcommittee is showing here. I am somewhat 
torn on this bill because I do agree, it is certainly beyond question, 
that the granting of stock options in the high technology industry, 
especially for start-up companies, has been enormously beneficial, and 
I do not want to see it changed. I do not even want to take the strong 
risk of it being changed, so if I were in charge of the Financial 
Accounting Standards Board, I would defer this. But I am not, and I do 
not want to be.
  We are in danger, I think, on this and on other issues of collapsing 
entirely the notion of a kind of respect for procedures. It is a 
mistake for this body always to legislate to get the specific outcome 
it wants on a particular issue without regard to the institutional 
frameworks. I think the institutional framework of a separate and 
independent and autonomous Financial Accounting Standards Board is a 
valuable asset. I do not want to impinge upon it.
  Members of this body are well aware that we never do anything only 
once. Maybe you can eat one potato chip, but you cannot overrule a 
board once only. If we set the precedent today of dictating to the 
Financial Accounting Standards Board what the accounting standards 
ought to be, I believe we will live to regret it.
  With regard to the options, here is the issue. I think they are a 
good thing in companies, particularly young start-ups. They ought to be 
able to give them. I guess if you are an old start-up, you ought to get 
out of the business. Young start-ups ought to be able to continue to 
give them.
  Here is the argument, because nothing in what FASB says says you 
cannot do them. What we are talking about is this: If companies are 
mandated to change the way in which they do the accounting on this, no 
change in the reality, but they change the accounting, will this leave 
the investment community to abandon a whole class of investments? I do 
not think a large number of people are now misled because it is in the 
footnote. I would assume if you are going to invest, you read the 
footnotes. But neither do I think that people will abandon the whole 
class of investments because when the accounting changes and it goes in 
the footnote to an expense, some of these companies will have gone from 
having shown a profit in one form of accounting to showing a loss.
  That is the argument. The argument is because nothing is being 
proposed. It would ban stock options from being done.
  What we are being told by the high-tech community, and I understand 
their fears, they do not want to take this risk. They are arguing that 
the investment community is apparently pretty dense and as long as the 
options are put into a footnote and they show a profit, they will 
invest. But if we change the accounting, the reality has not changed 
one iota, they will walk away from the whole class of places.
  Where is the gentleman from Texas, the former majority leader, Mr. 
Armey? Because he is the one who said, government is stupid and markets 
are smart. Would he please explain to them that markets are not stupid?
  In this case, he may have been right, because this is the argument. 
The crux of the argument is that if you change the accounting and do 
not change the reality, you will collapse investor interest in this 
whole class of industry, and I think that is wrong.
  Mr. BAKER. Mr. Chairman, I yield myself such time as I may consume.
  I wish to speak to the issue of FASB's independence and their track 
record on matters of financial accounting standards. It was in the fall 
of 1998 when FASB issued a statement relative to concerns about 
earnings manipulations by registrants in a number of industries, 
specifically banks, in the treatment of what was called loan loss 
reserves.

                              {time}  1230

  The allegation was that executives were exacerbating the amount of 
reserves necessary in order to offset potential volatility in financial 
institutions' earnings. Suffice it to say, it is a technical issue, 
again beginning in fall of 1998. I reference testimony of Governor 
Lawrence Meyer, member of the Federal Reserve, speaking on behalf of 
the Federal Reserve and all finance regulators. Six years later a 
letter issued then by the FDIC indicated that institutions should 
continue to determine the appropriateness of all their loan loss 
reserves on the basis of existing guidance set forth in GAAP and in the 
agency's supervisory guidance. Translation: they should ignore what 
FASB started 6 years earlier as an ill-conceived modification of safety 
and soundness provisions.
  The point of this historic analysis is to provide the Congress with 
the understanding that FASB does not always get it right. I join with 
many Members of Congress in that era in expressing concerns about the 
unintended consequences of the implementation of FASB's rule should it 
be implemented.
  Let us talk about what FASB has done in the course of the 
consideration of the issue currently at hand. The board announced their 
positions before a single comment from the public was solicited. The 
board disinvited comments on key issues of the current matter. The 
board disregarded the overwhelming majority of comments solicited. The 
board created an option valuation group to discuss valuation.
  After all was said and done, apparently FASB did not find the board's 
work to be of much use since it decided to revert to the same valuation 
models before appointing the board. FASB refuses to conduct road tests 
of actual valuation models, meaning it is not trying out to see what 
the real-world consequence is of its valuation methodology. It has 
refused to respond to industry presentations on the existing valuation 
methodologies. It has refused to respond to recommended alternatives 
and compromises.
  What has the board done? I alert the Members who have not yet 
received it to an e-mail distributed by a representative of FASB's 
foundation, I assume an independent arm of an independent

[[Page H6006]]

agency prescribed with the responsibility of engaging in political 
correspondence. What is a sad note about this particular e-mail, if one 
goes to the two phone numbers listed at the bottom of the e-mail, which 
is probably in all Members' offices, and they call those numbers, they 
can then refer themselves to directory assistance and ask for FASB's 
telephone numbers.
  The two numbers cited in this independent political correspondence 
are numbers listed as FASB's official phone numbers. If one were to 
apply their own standards of financial transparency to their own e-
mail, it should say FASB is now lobbying the Congress and using our 
phone numbers for ones to respond and make significant inquiry into the 
matter. It would appear although they find political interference a 
sullied and tawdry business, they have now engaged in such practice in 
attempting to influence the Congress on the direction of appropriate 
conduct.
  What is an option, and what does it mean to our economic direction? 
Assume for the moment we are trying to gather a half dozen young bright 
people into a garage at someone's home to construct a new innovative 
product and we bring these people in without sufficient cash to pay 
them salary; but we offer them the opportunity, should their 
intellectual prowess be sufficient in building value to a company, to 
one day cash in on the options we are giving them as a piece of their 
investment. Assume for the moment the value of the options are $20. 
Things go awry. Things go poorly. Six months hence the stock price may 
be worth $10. The employees will not cash in their right to those 
options because they are called, in the terms of the industry, 
underwater. They are not worth what they were when they were granted. 
The employee may leave and go elsewhere. Without the passage of this 
bill, what would FASB require them to do? To expense that option at the 
time of granting even though it were later not exercised. The result: 
an underreporting of financial value of corporate value. That seems to 
me to be just as big a problem as what those opponents allege is some 
grand misrepresentation of current financial condition.
  Options are reported today in the footnotes. One who persists can 
find out the dilutive effect on other shareholders. Translation: one 
can find out the facts about accurate financial condition if they 
choose to seek it out in currently published information.
  It is quite clear that many have accused the current administration 
and others of finding ourselves in a jobless economic recovery. Were 
that to be the case, which I certainly dispute, there is no dispute 
that the granting of options to a broad base of employees has been and 
remains a very strong component of job creation within our economy. 
Does it make sense for those who criticize a jobless economic recovery 
to take away one of the proven tools that does create jobs when they 
are so badly needed? I think not.
  So where are we to go? The identified problem was that a handful of 
executives were manipulating the granting of options for their personal 
financial gain. I, frankly, do not think the bill before us is a 
perfect remedy. I think it is a flawed remedy because the valuation of 
the option cannot be accurately predicted. But in response to the 
critics, we have said those top five must expense their options. Let us 
make them accountable for the reported wrongdoings of the past, but 
please do not affect adversely the broad-based stock option plans for 
the vast numbers of employees who have gained from their hard work, 
shared in the dynamic capital enhancement of corporations, and, yes, 
made money.
  I am one of those staunch advocates in the Congress who believe that 
money is the cure to poverty. And by allowing employees to invest and 
work and believe in the great American Dream that one day they can have 
a part of it, stock options represent a magnificent tool of economic 
opportunity.
  I urge this Congress to adopt H.R. 3574 as balanced; fair; 
transparent; and, most importantly, important for our economy.
  Mr. Chairman, I reserve the balance of my time.
  Mr. KANJORSKI. Mr. Chairman, I yield 3\1/2\ minutes to the gentleman 
from Florida (Mr. Stearns).
  (Mr. STEARNS asked and was given permission to revise and extend his 
remarks.)
  Mr. STEARNS. Mr. Chairman, I rise in opposition to the bill.
  And let me talk to my good friend from Louisiana. I heard him say in 
his statement that this bill is a flawed remedy. That is what I heard 
him say. And I agree with him. The bill is flawed.
  He mentions the footnotes. During the oversight hearings on Enron, we 
had the dean of the Dartmouth School of Business spend 3 weeks looking 
at the footnotes of Enron. He could not, he could not understand them, 
and he said nobody in their right mind could understand the footnotes. 
We could go from Enron across any of these corporations and see the 
lack of clarity in their corporate footnotes. WorldCom is another one, 
where Bernie Ebbers paid himself tens of millions of dollars in stock 
options, and they were never accounted for. People are not going to 
find them in the footnotes.
  This legislation is attacking accounting standards, and he is 
criticizing FASB. Certainly one could criticize the Securities and 
Exchange Commission. Where were they during all this corporate 
corruption?
  Options are immensely valuable to those who receive them, and we all 
agree options are good. That is not the debate. The debate is what this 
bill is about. Options are fully deductible against corporate income 
tax. A congressional mandate to ignore economic reality does not change 
economic reality.
  If my colleagues are thinking of voting for this legislation, they 
should ask themselves why Congress should forbid that stock options be 
deducted from corporate income when reporting to investors but fully 
deductible against income when paying corporate taxes. It is a 
distinction that makes no sense.
  Listening to the debate today, we know that this legislation is 
opposed by Allen Greenspan; Treasury Secretary John Snow; SEC Chairman 
Bill Donaldson, the chairman of the SEC. Warren Buffet has ridiculed 
this legislation, saying it is absolutely flawed, it makes no sense.
  I know of no occasion in history in which the United States Congress 
by statute has written an accounting rule, and that is what we are 
doing today. Are Members so confident in this body in their knowledge 
of accounting and financial markets that they will disregard the 
unanimous advice of the President's leading economic indicators, 
advisers, and the most famous investor in history? He has had 62 years 
of investing. How many of us have done that? He has ridiculed and said 
this bill is flawed.
  Obviously, we should make some change to FASB. I agree with that, and 
I believe we are missing an opportunity today because there is another 
way to approach the problem of accounting for options that would be 
less heavy handed and might improve the quality of information 
investors receive so when they go to the footnotes, they will be there 
and they can actually understand what the stock options are all about.
  U.S. GAAP is very detail oriented. It needs to be changed. On that I 
agree with my colleague from Louisiana. We learned from our 
investigation of Enron and WorldCom that the very complexity of GAAP 
itself can be exploited by those who obscure rather than enlighten. The 
legislation we are considering today mandates a dictatorial rule 
grafted on to the current GAAP regime that needs change, that simply 
forbids expensing except for the top five executives. Why is that so 
sacrosanct that we take just the top five? What about six? What about 
seven? What about eight? What about four? What about three? No. Just 
the top five. And then so long as those executives can significantly 
undervalue their options. If my colleagues stand for a rigorous 
accounting, oppose this bill.
  Mr. KANJORSKI. Mr. Chairman, I yield 2 minutes to the gentlewoman 
from New York (Mrs. Maloney).
  Mrs. MALONEY. Mr. Chairman, I thank the gentleman for his leadership 
and for yielding me this time.
  I rise in opposition to this bill and in support of the amendments by 
the gentleman from California (Mr. Sherman) and the gentleman from 
Pennsylvania

[[Page H6007]]

(Mr. Kanjorski) and me. And in opposition to this bill, I am joined 
with comments from Arthur Levitt, John Bogle, Warren Buffet, Allen 
Greenspan, John Snow, SEC Chairman Donaldson, and many others. Their 
comments I will include for the Record.
  Some of my colleagues today have said that it is necessary for 
companies to not show the cost of stock options to investors in order 
to encourage innovation. So my question is why is it necessary for 
companies to hide an expense to innovate? Why in the world is this good 
public policy? On the contrary, this accounting loophole encourages 
companies like Enron and WorldCom to artificially inflate the value of 
their stock, deceive investors, and evade corporate income taxes. Many 
large companies have employee stock options and expense them, including 
Home Depot, Microsoft, Netflix. We should continue and have one 
standard.
  In understanding stock options and their use, there is probably no 
greater authority than the indicted Enron president and CEO, Jeffrey 
Skilling. This is what Jeffrey Skilling has to say about stock options 
when he testified before the Senate: ``Because stock options are not 
required to be disclosed as an expense on public filings, corporations 
use them to hide expenses and inflate the balance sheet. You issue 
stock options to reduce compensation expense and therefore increase 
your profitability.'' He ought to know, and he is going to jail.
  Hidden stock options encourage accounting fraud. End of story. I urge 
a ``no'' vote on the underlying bill.
  Mr. BAKER. Mr. Chairman, I yield 2 minutes to the gentleman from 
California (Mr. Cox), a respected Member on matters of financial 
reporting.
  Mr. COX. Mr. Chairman, I thank the gentleman from Louisiana (Mr. 
Baker) for bringing this bill to the floor.
  It is vitally important because I agree with the last speaker, hidden 
stock options are a tool of fraud artists. What we are about to do at 
FASB is give corporate managers, the new Jeff Skillings, an opportunity 
to manipulate earnings because, by choosing whether or not to issue 
stock options, they will now be able to do what they cannot do today, 
and that is fudge the earnings figure. Currently, stock options are not 
run through the income statement. But if we make this change where we 
imagine a notional value for stock options, where nobody real knows 
really what they are worth, run them not through the balance sheet but 
through the income statement, we have now got a new tool to manage 
earnings. That is exactly what Enron taught us we should not do.
  We should fully disclose stock options, and there is ample evidence 
that we can do much better in disclosing to investors stock option 
costs to the company, to the shareholders, and the place we do that is 
on the balance sheet.

                              {time}  1245

  The issuance of stock and the issuance of an option on stock is a 
dilution event. It is an adjustment to the capital accounts. It belongs 
on the balance sheet; it does not belong on the income statement.
  The FASB chairman testified before the Committee on Energy and 
Commerce 2 weeks ago that FASB wants to make this change not because it 
is technically correct or professionally sound, but rather ``because of 
the high level of public concern expressed by investors.''
  But during the most recent proxy season, shareholders across the 
country are rejecting proposals to expense stock options. Shareholders 
of Gillette where Warren Buffett, the champion of stock option 
expensing on the income statement, sits on the board and controls 
nearly 10 percent of the shares, voted against expensing on the income 
statement.
  The people for whom FASB claims to be acting, the people with money 
at stake, are not only not convinced, but they recognize if FASB goes 
forward with this, it is going to be a new tool for manipulation.
  Let us keep the earnings statement honest. Let us vote for the bill.
  Mr. KANJORSKI. Mr. Chairman, I yield 2 minutes to the gentleman from 
Georgia (Mr. Marshall).
  Mr. MARSHALL. Mr. Chairman, I spent a lot of my career as a lawyer 
representing small banks and small businesses and individuals that felt 
that they had been defrauded as a result of false financial statements 
that had been provided them in order to induce investment or induce 
credit.
  Most folks who are watching this understand that they cannot file a 
false financial statement in order to get a credit card, that they 
cannot file a false financial statement in order to get a loan. They 
have got to comply to the letter with the information that is requested 
and provide that information, failing which they could end up in jail. 
That, I think, is largely what is going on here.
  The question is whether or not we are going to defer to the Financial 
Accounting Standards Board, which historically has set the standard for 
providing the financial statements of a corporation, whether we are 
going to defer to that body so that that body can figure out what kind 
of information must be provided so that the financial statements of a 
corporation fairly reflect the condition of the corporation, or are we 
going to interfere and essentially enable start-up venture capital 
corporations to mislead those who are investing in those businesses.
  Now, most investors are sophisticated enough they are going to read 
the footnotes and understand that there are stock options that have 
been granted, and that consequently the value of the corporation and 
its earnings have been affected as a result of that. But some are not.
  We should leave it to the experts, independent experts that do not 
have a dog in this fight as far as money is concerned, to try to come 
up with the standards that are appropriate in order to assure that the 
best kind of financial reporting is available to those who are 
investors, to those who are shareholders.
  It is no different really than seeking a credit card, wanting to get 
money from an investment company, wanting to get money from a bank, 
wanting to get money from somebody else, and having to fill out a 
financial statement. It is as simple as that. We ought not to be 
interfering.
  Mr. BAKER. Mr. Chairman, I yield 2 minutes to the gentleman from Ohio 
(Mr. Boehner), a staunch defender of free enterprise.
  Mr. BOEHNER. Mr. Chairman, I rise before my colleagues today to urge 
support for the bill offered by the gentleman from Louisiana (Mr. 
Baker).
  In many respects, the use of broad-based stock options reflects what 
we have come to understand about our new economy, that is, that 
economic growth and opportunity are all about unleashing the talents, 
ideas and knowledge of workers who create constant improvements and 
constant innovation. The employers who have best answered this call and 
who have best generated the kinds of jobs that our workers need are 
those who have understood that these products and services come from 
bright, enterprising workers who will share their imagination and 
experience with their employers. That is why stock options have become 
such a fixture of economic growth, and it is important that we preserve 
the ability of employers to give their employees a stake in the success 
of their organization.
  Regrettably, instead of recognizing stock option plans for what they 
are, incentive plans, FASB has deemed them a net cost to the company 
and supports requiring these firms to calculate and deduct those costs 
from corporate earnings. If companies do, the real losers in this will 
be American workers and the U.S. economy.
  Who knows at what value companies will be required to charge their 
earnings? I think the point that was made by the gentleman from 
Louisiana (Mr. Baker) and the gentleman from California (Mr. Cox) that 
the ability of corporate managers to manipulate earnings based on the 
value of their stock options is in fact a real concern.
  So, while we can get hung up on whether we should interfere with FASB 
or not, we are elected by the American people to represent their 
interests; and I believe when you look at the use of broad-based stock 
options in the American economy, it really is the incentive that is 
driving many companies and their employees to be creative, to be 
inventive and to continue to be the real leaders in the world economy.
  Mr. BAKER. Mr. Chairman, I yield 2 minutes to the gentleman from 
Virginia (Mr. Goodlatte).

[[Page H6008]]

  (Mr. GOODLATTE asked and was given permission to revise and extend 
his remarks.)
  Mr. GOODLATTE. Mr. Chairman, I thank the gentleman from Louisiana 
(Chairman Baker) for his leadership on this issue, and I rise in strong 
support of H.R. 3574, the Stock Option Accounting Reform Act.
  For years, companies in the U.S. have been using stock options to 
attract the most skilled applicants in the world. Because many new 
companies do not have the financial resources to attract the best 
qualified candidates, stock options provide a much-needed incentive for 
the brightest workers to work for them.
  Not only do stock options hold the potential of additional income for 
employees, but they create a sense of ownership that helps workers 
recognize they have a stake in the company.
  Now is not the time to bind the hands of America's technology 
companies by imposing additional layers of red tape on them. If U.S. 
companies are to continue to win the global competition for tech 
talent, they need to have the most flexibility to run their companies, 
including the flexibility to offer innovative compensation and benefits 
packages like stock options.
  H.R. 3574, the Stock Option Accounting Reform Act, would allow 
companies to continue their practices of offering stock options to 
employees as a method of attracting the best and brightest workers 
without mandating that companies expense these stock options in annual 
reports.
  There are also important safeguards in the Stock Option Accounting 
Reform Act to guard against corporate fraud. While companies would not 
have to expense the stock options given to rank-and-file employees, 
they would have to expense any stock option given to the chief 
executive officer and the next four most highly compensated executive 
officers of the company. In addition, this legislation requires 
companies to clearly disclose all information related to stock options 
in plain English in their financial statements.
  H.R. 3574 protects an important tool that small businesses and start-
up companies use to compete with others all over the world to bring the 
most skilled employees to work in the U.S. With companies in China and 
other competitors using stock option compensation packages to attract 
workers, we must ensure our government does not impede the ability of 
U.S. companies to compete in the highly-skilled labor market.
  H.R. 3574 contains important safeguards against corporate fraud and 
ensures that American businesses have the tools they need to compete in 
the global marketplace.
  Mr. Chairman, I urge each of my colleagues to support this important 
legislation.
  Mr. BAKER. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman from 
Minnesota (Mr. Kennedy), a member of the committee.
  Mr. KENNEDY of Minnesota. Mr. Chairman, I too rise in support of the 
Stock Option Accounting Reform Act. This is about innovation that 
drives our economy. So many businesses have stock options as a primary 
tool to get the innovative juices of their employees going. It also 
really helps align the employees of the company with the interests of 
the company, moving it forward, helping it to be competitive.
  This is a prime source of our innovation and success here in America. 
We do not need to limit it beyond the top five officers, as this does. 
If we went ahead with expensing stock options, the volatility and 
uncertainty, I think, would end the use of stock options and be 
detrimental to our economy.
  So I do believe that we have to move forward to protect this 
innovative source of energy in our economy, keep our small businesses 
creating the new jobs of the future, keep America at the cutting edge, 
keep employees motivated and aligned with the interests of their 
enterprises, and this, in the end, will be good for America and good 
the American economy.
  Mr. KANJORSKI. Mr. Chairman, I reserve the balance of my time.
  Mr. BAKER. Mr. Chairman, I yield 1 minute to the gentleman from Texas 
(Mr. Hinojosa).
  Mr. HINOJOSA. Mr. Chairman, I rise as a cosponsor and a strong 
supporter of H.R. 3574, the Stock Option Accounting Reform Act.
  Stock options are extremely important to America's economic growth. 
They allow companies, particularly start-ups, to recruit and retain 
top-flight talent when the salaries they offer cannot compare with more 
established competitors. This is particularly important since the 
majority of the new jobs in the economy come from start-ups, and that 
issuance of stock options did not lead to corporate corruption.
  The mandatory expensing of stock options as proposed by the Financial 
Accounting Standards Board will result in stock options being offered 
to only the most senior managers, if at all. Requiring the expenses of 
all stock options will make companies less inclined to offer such 
options to employees and thereby hamper the ability of companies that 
currently offer options to attract and retain talented employees.
  Because options are used extensively by small innovative start-up 
companies, requiring expensing would have an adverse impact on 
innovation, economic growth and competitiveness.
  It will confuse investors, because they cannot be accurately valued 
and do not reflect a cash cost. The expensing of stock options reflects 
a desire to reduce all potential liabilities to a single number in a 
company's earnings statement. However, GAAP earnings are only one 
measure to which investors should be looking.
  Mr. BAKER. Mr. Chairman, I yield 2 minutes to the gentleman from New 
Jersey (Mr. Menendez), the chairman of the Democratic Caucus.
  Mr. MENENDEZ. I thank the gentleman for yielding me time.
  Mr. Chairman, I rise today in strong support of H.R. 3574, the Stock 
Option Accounting Reform Act. This bill I believe is proworker and 
corporate accountability. It is a true compromise that will protect 
broad-based stock options for rank-and-file workers, while ensuring 
accountability and transparency of the top corporate executives.
  This bill requires stock option expensing of the top five corporate 
executives, which ensures public disclosure of executive compensation 
packages. So there is full disclosure and full transparency for 
corporate executives. At the same time, the bill protects the stock 
options that rank-and-file workers currently receive.
  More than 14 million U.S. workers receive stock options and 15 
percent of union workers receive stock options. That means that rank-
and-file workers, not just corporate executives, are sharing in the 
benefit of stock options. These options are crucial to the global 
competitiveness of high-growth industries in this country. Companies 
such as the high-tech industry have to rely on stock options to recruit 
and retain high-skilled workers, very often keeping these good-paying 
jobs in the United States, rather than sending them overseas.
  Stock options also give employees a stake in their company, creating 
incentives for every employee to work hard and ensure that the company 
succeeds. That gives U.S. companies an additional competitive advantage 
over their foreign competitors.
  Some have argued that this bill just benefits fat-cat executives, but 
I believe nothing could be further from the truth. No one should be 
fooled into thinking that this bill lets corporate executives off the 
hook, because it does not. It actually requires the expensing and full 
accounting of the top executives' stock options.
  It is naive to think if we require the expensing of all stock 
options, that suddenly executive compensation packages are going to be 
reduced or eliminated. That simply is not going to happen. What will 
happen if this bill is not passed, however, is that the stock options 
of 14 million rank-and-file workers will be in jeopardy. I encourage my 
colleagues to support the bill.
  Mr. BAKER. Mr. Chairman, I yield 1 minute to the gentleman from 
Oregon (Mr. Blumenauer).
  Mr. BLUMENAUER. Mr. Chairman, I appreciate the gentleman's courtesy 
in permitting me to comment briefly.
  I want to make three points: One, WorldCom and Enron, some of the 
abusers that we have talked about here, did not have broad-based stock 
option programs. If you have listened carefully to the debate, no one 
has given an example of abuse from any broad-based company scheme. 
Indeed, the fact that they are broad-based makes it less likely that 
they will be abused.

[[Page H6009]]

                              {time}  1300

  Second, cash poor, innovative companies deserve this tool. This is 
how they can compete with the more mature companies that the Warren 
Buffetts of this world invest in, where cash is king.
  Third, contrary to what some of my friends have asserted, if one 
talks to investors, employees in these companies, and executives, they 
all agree that the highly variable balance sheet values that will be 
produced by this scheme will have a very negative impact on the 
perceptions of these companies, making it much less likely that they 
will use this technique.
  The consensus is clear, and I hope my colleagues will approve the 
legislation.
  Mr. BAKER. Mr. Chairman, I yield to the gentleman from Michigan (Mr. 
Smith) for the purpose of making a unanimous consent request.
  (Mr. SMITH of Michigan asked and was given permission to revise and 
extend his remarks.)
  Mr. SMITH of Michigan. Mr. Chairman, I rise to oppose the bill and 
ask that my ``no'' vote be submitted in the Record at this point 
because of the uniqueness of the intrusion of the Federal Government in 
demanding accounting principles.
  I oppose H.R. 3574 for two reasons. First, it would set a precedent 
of Congress interfering in accounting minutia. According to CRS, 
Congress has never passed a law telling the private sector how to do 
accounting other than taxes. Second, if this bill were to become law, 
it would require different accounting standards for the United States 
and the rest of the world. It would, in effect, require two different 
accounting numbers for international companies, one with U.S. standards 
and one with international standards, as set by the International 
Accounting Standards Board (IASB). FASB, Federal Reserve Chairman 
Greenspan, SEC Chairman Donaldson, and many others have said that this 
type of rule change may harm the transparency of American accounting 
rules.
  Mr. Chairman, I add to my ``no'' vote explanation, comments by some 
financial experts:

       The Honorable Alan Greenspan, Chairman, Federal Reserve 
     System, April 21, 2004
       With respect to stock options, I think it would be a bad 
     mistake for the Congress to impede FASB in this regard. And 
     in this regard, as best I can judge the FASB changes in 
     recommendations with respect to accounting procedures strike 
     me as correct, and it's not clear to me what the purpose of 
     Congress is in this particular procedure. I think the 
     Congress would err in going forward and endeavoring to impede 
     FASB in its particular activities:
       William H. Donaldson, Chairman, United States Securities 
     and Exchange Commission, May 3, 2004
       For the policy reasons described above, recently 
     underscored by the Sarbanes-Oxley Act, I strongly support an 
     independent and open standard-setting process for 
     establishing accounting principles for U.S. public companies. 
     Accordingly, I believe that the process established by the 
     FASB to consider the pending stock option proposal should be 
     allowed to run its course:
       The Honorable Paul A. Volcker, Chairman of the Trustees of 
     the International Accounting Standards Committee Foundation, 
     and former Chairman of the Federal Reserve System, April 20, 
     2004
       I suggest that, before acting, Senators and Congressmen ask 
     themselves two simple questions: Do I really want to 
     substitute my judgment on an important but highly technical 
     accounting principle for the collective judgment of a body 
     carefully constructed to assure professional integrity, 
     relevant experience, and independence from parochial and 
     political pressures? Have I taken into account the adverse 
     impact of overruling FASB on the carefully constructed effort 
     to meet the need, in a world of globalized finance, for a 
     common set of international standards?
       Warren Buffett, Chairman and CEO, Berkshire Hathaway, May 
     1, 2004
       Write your congresspeople giving them your views on whether 
     options should be expensed. . . . It was a disgrace 10 years 
     ago when Congress bludgeoned the SEC and the [Financial] 
     Accounting Standards Board to override FASB's decision to 
     expense options. It accelerated the anything-goes mentality 
     of the 1990s.
       The Honorable Richard C. Shelby, Chairman of the Committee 
     on Banking, Housing, and Urban Affairs, United States Senate, 
     June 30, 2003
       I don't think we should make those rules in the Banking 
     Committee or even in Congress. . . . [FASB] understands the 
     implications. There are economic implications here, but it 
     also gets into corporate governance and honesty in financial 
     statements.

  In conclusion Mr. Chairman, options clearly have a value and failing 
to expense them, despite the difficulty of doing so, distorts financial 
statements and is misleading and unfair to the casual investor.
  Mr. BAKER. Mr. Chairman, I yield reluctantly only 1 minute, because 
of time limitations, to the gentleman from Texas (Mr. Barton), the 
chairman of the Committee on Commerce.
  Mr. BARTON of Texas. Mr. Chairman, I thank the distinguished 
subcommittee chairman, the gentleman from Louisiana (Mr. Baker); and I 
want to commend the full committee chairman, the gentleman from Ohio 
(Mr. Oxley), for bringing this bill to the floor.
  There have been some issues about how to get it to the floor, and I 
am happy to report that we were able to work those out. The committee I 
chair was given a sequential referral, which we handled very 
expeditiously on Friday while we were not in session, so we were able 
to move on this bill.
  I think the policies in the bill are a fair compromise between those 
who think all stock options should be expensed and those who think no 
stock options should be expensed. The gentleman from Ohio (Mr. Oxley) 
and the gentleman from Louisiana (Mr. Baker) and others on the 
Committee on Financial Services have given us a compromise that sets a 
finite number of the most senior management team whose options should 
be expensed.
  So I am happy to support the bill. I would encourage all Members to 
vote for the bill and hope that we can move it to the other body and 
hopefully get a positive vote on this piece of legislation in the other 
body.
  So on behalf of the Committee on Energy and Commerce, we are happy to 
cooperate with our friends on the Committee on Financial Services to 
bring this bill to the floor.
  Mr. KANJORSKI. Mr. Chairman, I yield 2 minutes to the gentleman from 
California (Mr. Sherman).
  (Mr. SHERMAN asked and was given permission to revise and extend his 
remarks.)
  Mr. SHERMAN. Mr. Chairman, I come here as a CPA to fight for the 
independence of the FASB, an independent board that has given us 
generally accepted accounting principles which this bill would change 
to generally political accounting principles. America has to fight in 
the world for capital.
  In China, domestic companies just report pretty much whatever they 
want on their financial statements. America competes with tough, 
transparent, enforced, nonpolitical accounting standards. That image 
has been recently tarnished by recent scandals, and now we are being 
told to adopt generally political accounting principles that will 
further tarnish our image.
  We are told that it is difficult to estimate the expense amount of 
stock options, that accountants cannot do it. Well, it is actually a 
lot easier than things accountants have been doing for centuries 
involving amortization, obsolescence, depreciation, and dozens of other 
estimates. We are talking here about executive compensation, some $40 
billion a year.
  Now, imagine if you gave a crumb to 999 people and a giant cake to 
one person. You could then come to the floor and talk about a broad-
based distribution of carbohydrates. That is in effect what we have 
here.
  When the academics came before our committee, they explained roughly 
30 percent of all stock options are in the hands of the top five 
executives, and the remaining 70 percent is spread very narrowly among 
other top executives. We have crumbs for the rank-and-file, almost all 
the options in the hands of the top executives. That is why 80 percent 
of CEO compensation in this country is in the form of stock options.
  Let us say, even though that phoney accounting was good, should we 
not do it for health care instead of executive compensation? Why not 
have an accounting principle that says companies can provide employee 
health care, and we are going to encourage them to do so, and they do 
not have to list it as an expense on their income statement? The users 
of accounting information do not want this bill. The Investment Company 
Institute representing the mutual funds, and Alan Greenspan, for 
example, have come out against it.
  Finally, this bill is absurd politics. It will hurt America in the 
fight for capital around the world.
  This bill, for the first time in history, would overrule the FASB. 
Let us vote it down.
  Mr. BAKER. Mr. Chairman, I yield 1 minute to the gentleman from Texas 
(Mr. Hensarling), a member of the

[[Page H6010]]

committee and an outspoken advocate for the bill.
  Mr. HENSARLING. Mr. Chairman, I thank the gentleman for yielding me 
this time, and I thank the gentleman from Louisiana (Chairman Baker) 
and the gentleman from Ohio (Chairman Oxley) for their work on this 
compromise legislation that is so important to our economy.
  H.R. 3574 would prevent the proposed FASB rule from hurting start-ups 
and other small companies who very often rely on stock options as an 
incentive to hire and retain employees. If FASB is permitted to require 
these companies to report their options as an expense, the result will 
be a distorted view of earnings by investors and less confidence in our 
markets.
  This bill will help improve the transparency and disclosure of stock 
options, while not negatively impacting the ability of businesses to 
provide this valuable incentive to their employees.
  As our economy continues to improve and investor confidence rises, we 
must be careful not to place any excessive burdens on private business 
or act in any way that would reduce confidence in our markets.
  If expensing options is mandated, I believe inaccurate and certainly 
misleading information will be produced, leaving investors with more 
questions than answers about a company's financial statements and 
economic conditions.
  Also, Mr. Chairman, studies have shown that companies with broad-
based option plans are generally more productive, and I urge my 
colleagues to support this legislation.
  Mr. KANJORSKI. Mr. Chairman, I yield 2 minutes to the gentleman from 
Illinois (Mr. Emanuel).
  Mr. EMANUEL. Mr. Chairman, I rise in strong support of the bipartisan 
Kanjorski-Castle substitute and oppose the underlying bill.
  I find it ironic, on a day in which the Wall Street Journal reports 
in its lead story about the disparity in the economy between the top 1 
percent who are benefiting from this economy and the middle class who 
are hitting a dry hole as it relates to income costs, college costs, 
savings and retirement, here we are on the floor debating a bill in 
which the bulk of the benefits go to the top 1 percent.
  Eighty percent of the compensation for CEOs is in the form of stock 
options. This is the year in which we are supposed to debate a higher 
education reauthorization bill. We do not do it. This is the year in 
which 44 million Americans are without health insurance, 33 million who 
work full-time. We do not debate it. So what does this Congress do? 
Rather than do the things it is supposed to be involved in, it is 
involving itself in the things that we should not be involved in. I 
wonder why the American people are so cynical about what we do around 
here.
  The fact is, let me give Warren Buffett's quote about expensing stock 
options, with all due respect to the intelligence and the wisdom of 435 
Members when it comes to the private sector. Warren Buffett says, if 
options are not a form of compensation, what are they? And if 
compensation is not an expense, what is it? And if expenses should not 
go into the calculation of earnings, where in the world should they go?
  That was Warren Buffett's analysis. That is why he believes this is 
the right thing for FASB to do.
  The fact is, FASB was right to say that there should be expensing of 
options. What they need to continue to work on is how we come up with 
the issue of value and how we evaluate them. The work of FASB on this 
issue is not done, but they are right when it comes to the issue of 
expensing. It is time for Congress to return to the work of focusing on 
the middle-class families who are facing squeezes as it relates to 
their income that has been stagnated, college costs that have gone up 
by 26 percent, health care costs that have risen by 33 percent, 44 
million Americans who are without health care, rather than get 
sidetracked into issues that do not relate to middle-class families and 
the forces of this economy on their living standards.
  I support and ask Members to support the Kanjorski bill and not the 
underlying legislation.
  Mr. BAKER. Mr. Chairman, I yield myself the remaining time.
  Mr. Chairman, under the current FASB proposal, one would either use 
the binomial or the Black-Scholes methodology to determine the 
valuation of a stock option. During the intervening period, staff has 
calculated the remaining debate time available to me to close through 
both Black-Scholes and binomial, and the result has come out anywhere 
from zero to an hour and a half. Recognizing we have a commonsense 
limit of 1 minute, I shall proceed diligently.
  The current proposal under H.R. 3574 would lead us to a transparent 
disclosure regime. It would continue a very important job-creation tool 
to our free enterprise system. It would allow employees to share in the 
free-enterprise dream of participating in the growth and ultimate 
financial profitability in the corporation for which they work.
  Make no mistake: this bill nails those executives who have been held 
up as the abusive forces within our system by requiring the top five to 
expense their options granted.
  The solution is not perfect; frankly, I would not require expensing 
at all. But it is a response to the critics who said executives have 
abused their privilege. For commonsense job creation and reform, I urge 
this body to support H.R. 3574.
  Mr. UDALL of Colorado. Mr. Chairman, I rise in reluctant support of 
this bill.
  I support what the bill attempts to preserve. Stock options have been 
an important way for companies to attract and retain talented workers. 
Many small, start-up companies--competing for employees with larger 
firms that can pay more--have been able to offset the advantage of 
these larger firms by offering stock options to their employees.
  I am not opposed to companies electing to expense stock options 
voluntarily--in fact, I voted for Representative Oxley's amendment 
today that clarifies the right of those companies to continue to do so. 
But with so many millions of our workers still depending on these 
options at a time when we need entrepreneurship and innovation more 
than ever, I believe that if we are going to require the expensing of 
options, we have to make sure it is done right.
  I am not an accountant, so I don't claim to know what is the 
``right'' way to value options. The Financial Accounting Standards 
Board (FASB)--not Congress--is the appropriate institution to be 
addressing that question.
  I do know, however, that I have heard from constituents, business 
leaders, and small and large companies alike representing many industry 
sectors that they are concerned about how FASB's current proposal would 
value options. One business leader wrote to me that ``the FASB rule in 
its current form is unworkable, complex, extremely hard for investors 
to understand--let alone management to certify--and costly to 
implement.''
  I also know that I have heard many concerns expressed about FASB's 
process in formulating the stock options expensing rule, and many calls 
for Congress to intervene to prevent FASB's current proposal from 
taking effect. Many expressing those concerns think that FASB strayed 
from its own mission to be objective in its decisionmaking.
  Mr. Chairman, this has left me and some of my colleagues in a 
quandary. While requiring the expensing of stock options might be the 
right course, it is the wrong course if it is done the wrong way. And 
with FASB moving ahead on its rule, I believe it is important to 
support this bill to send the message that FASB needs to slow down and 
work to come up with a standard that has broader support.
  So let me be clear that my support for this bill is based less on the 
bill's provisions than it is on what I believe are the inadequacies of 
the FASB proposal. A better bill would provide investors with the 
information they need, but without penalizing the entrepreneurial 
spirit and employee ownership that stock options make possible. The 
bill we are considering today does not include these improvements.
  Mr. Chairman, I strongly support making financial statements more 
accurate and transparent. But I also strongly believe that companies in 
Colorado and throughout this country have been able to innovate and 
contribute to the growth of our economy in part because of the stock 
option plans they have been able to offer to their employees. We must 
find the right way to value these options so as not to put this 
country's workers, their employees, and the economy in jeopardy.
  Mr. SMITH of Texas. Mr. Chairman, I support H.R. 3574, the Stock 
Option Accounting Reform Act, which preserves broad-based stock 
options. It is vital that we preserve these incentives to promote stock 
ownership for millions of workers as we try to fulfill President Bush's 
goal of creating an ``ownership society.''
  In my home state of Texas, numerous high-tech companies offer stock 
options to attract the best and the brightest employees. Options

[[Page H6011]]

have become a vital tool used to attract educated and highly-skilled 
employees to companies both in Texas and elsewhere.
  Broad-based employee stock option plans give employees at all levels 
a chance to own a ``piece of the rock.'' This in turn fuels innovation 
and the entrepreneurial spirit and increases productivity, because 
employees feel as though they have a vested interest in the success of 
the company.
  However, the Financial Accounting Standards Board wants to change the 
rules in a way that would make it more difficult for companies to 
continue offering stock options to their rank-and-file employees.
  Passage of H.R. 3574 is essential in our efforts to create more jobs 
and growth in the high tech sector of our economy. It would be a huge 
mistake to discourage companies from offering stock options. Many of 
our international competitors are increasing the use of stock options 
to gain competitive advantage. So they are a vital tool to recruit and 
retain high tech workers in America.
  Mr. KIND. Mr. Chairman, I rise today in strong support of H.R. 3574, 
the Stock Option Accounting Reform Act. I believe it is extremely 
important to the nearly 15 million Americans who hold stock options 
that we pass this legislation.
  As a member of the New Democrat Coalition, I have always supported 
protecting stock options. The promotion of stock options is an 
important tool for businesses seeking to recruit and keep employees. 
Innovative, creative companies have recognized that a key component to 
keeping the brightest and most talented workers is giving employees a 
stake in their company. The increasing accumulation of stock options by 
American workers has proved a financial success for employees and an 
important tool in helping the economy.
  Another mark of the success of stock options is that employees at all 
ranks of companies hold them. Contrary to popular belief, it is not 
only corporate executives who hold stock options; rather, 85 percent of 
stock options are held by non-management workers. H.R. 3574 simply 
assures that these rank-and-file workers will have continued access to 
an important benefit. At a time when Americans are increasingly worried 
about losing jobs overseas and many small businesses are struggling, 
the protection of stock options is crucial to helping this country's 
economy.
  Employee stock options are threatened, however, by a Financial 
Accounting Standards Board (FASB) proposed standard that would require 
companies to expense all employee stock options. This decision was made 
over the objection of numerous businesses and despite the likely 
negative economic consequences of the proposed standard. If Congress 
does not react, we run the risk of allowing millions of hard-working 
Americans to lose the financial benefit they have enjoyed from stock 
options as well as hurting small and large businesses throughout the 
country.
  Cleary, there is a great need for the Stock Option Accounting Reform 
Act, which would require that stock options given to the top five 
executives of a company be expensed and require a study to review the 
possible implications of the FASB proposal on workers, businesses, and 
the American economy. The FASB ruling has the potential to do great 
harm to our country's economy and its workers. To prevent such harm, I 
urge my colleagues to support this bipartisan bill that is so important 
to American workers.
  Mr. HONDA. Mr. Chairman, as a Member of the Silicon Valley 
Congressional Delegation, I fully support H.R. 3574, the Stock Option 
Accounting Reform Act.
  This sensible and balanced legislation promotes corporate 
transparency while protecting broad-based employee stock option plans. 
Such plans are good for workers, good for business and good for our 
Nation!
  I would caution my colleagues against believing that stock options 
are bestowed upon a privileged few. A 2002 study concluded that 13 
percent of American workers held stock options. That equals 14.6 
million Americans, 85 percent of whom are in non-management positions.
  It is no wonder then that workers are some of the most vocal 
opponents to expensing of stock options.
  Just consider the comments submitted to FASB by one San Jose 
employee, ``I have never felt the same ownership as I do now because of 
stock options. I am not an executive in the company but a supervisor-
level engineer. This sense of ownership is true even for the entry-
level technicians who also receive options.''
  Another high tech employee rightly concludes, ``Making stock options 
less available only hurts the little guys--your constituents.''
  I ask my colleagues to act in the best interests of their 
constituents. Rather than allow FASB's rules to take effect, Congress 
should encourage more companies to offer stock options, so that 
thousands more can enjoy the financial security realized by 13 percent 
of American workers that have taken advantage of stock option purchase 
plans.
  Employee stock option plans set our country apart from others; they 
reward hard work, ingenuity and dedication--the very qualities that 
have helped make our Nation the success story that it is. This bill is 
critical to preserving this important tradition.
  I urge my colleagues to support H.R. 3574.
   Mr. DINGELL. Mr. Chairman, the House should be ashamed today.
   Two years after Jeff Skilling of Enron testified before the Congress 
about how stock option accounting can be abused to overstate earnings, 
and two years after we passed the Sarbanes-Oxley Act to clean up 
corporate and accounting fraud, the House has come to this Floor to 
pass legislation sanctifying phony accounting. We told the Financial 
Accounting Standards board (FASB) to fix this problem--now we're 
telling them, and investors, that the political fix is in.
   H.R. 3574 is a bad bill. Federal Reserve Board Chairman Alan 
Greenspan warned in Congress that ``it would be a bad mistake for the 
Congress to impede FASB'' because the proposed FASB changes to 
accounting for stock options ``strike me as correct.''
   Famed investor Warren Buffett says the legislation is 
``nonsensical'' based on ``fuzzy math'' and ``Alice-in-Wonderland 
assumptions.''
   Why does he say that? Well the bill mandates that, when a company is 
calculating the expense of the options given to the five highest paid 
executives--the only ones allowed to be expensed--it must assume that 
the stock price has zero volatility, i.e., it never goes up or down. As 
Buffett notes, the only reason for making such an assumption is to 
``significantly understate'' the value of the few options the bill 
allows to be accounted ``to enable chief executives to lie about what 
they are truly being paid and to overstate the earnings of the 
companies they run.''
   The Chairman of the Securities and Exchange Commission (SEC) also 
opposes this legislation: it runs counter to the SEC's mandate to 
protect investors and to make sure that companies provide honest and 
transparent information.
   The bill gets worse. Not content to sprinkle holy water on bad 
numbers, it goes on to prohibit the voluntary expensing of stock 
options by companies that want to present honest accounts. There are 
currently over 575 companies, including Ford, General Motors, 
Microsoft, and Citigroup, voluntarily expensing their options at fair 
value. If this bill were enacted in the form reported by the Committee 
on Financial Services, they would have to cease doing so and restate 
their financials at substantial cost and disruption to the market. Only 
after a hearing on the subject before the Committee on Energy and 
Commerce did the manager of the bill produce a Floor amendment to fix 
this flaw.
   Finally, H.R. 3574 is opposed by FACTS (the Financial Accounting 
Coalition for Truthful Statements), a broad coalition of 30 pension 
funds, consumer groups, labor unions, and investors. Their July 19, 
2004, statement to the House warns that ``the proposed legislation is 
worse than current accounting practice.''
   I urge my colleagues to vote ``yes'' on the Kanjorski substitute, 
which affirms the independence of FASB and the importance of honest and 
credible accounting standards. If it fails, vote ``no'' on H.R. 3574.
  The CHAIRMAN pro tempore (Mr. LaHood). All time for general debate 
has expired.
  Pursuant to the rule, the committee amendment in the nature of a 
substitute printed in the bill shall be considered read.
  The text of the committee amendment in the nature of a substitute is 
as follows:

                               H.R. 3574

       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 ``Stock Option Accounting 
     Reform Act''.

     SEC. 2. MANDATORY EXPENSING OF STOCK OPTIONS HELD BY HIGHLY 
                   COMPENSATED OFFICERS.

       Section 13 of the Securities Exchange Act of 1934 (15 
     U.S.C. 78m) is amended by adding at the end the following:
       ``(m) Mandatory Expensing of Stock Options.--
       ``(1) Named executive officer.--As used in this subsection, 
     the term `named executive officer' means--
       ``(A) all individuals serving as the chief executive 
     officer of an issuer, or acting in a similar capacity, during 
     the most recent fiscal year, regardless of compensation 
     level; and
       ``(B) the 4 most highly compensated executive officers, 
     other than an individual identified under subparagraph (A), 
     that were serving as executive officers of an issuer at the 
     end of the most recent fiscal year.
       ``(2) In general.--Subject to paragraph (4), every issuer 
     of a security registered pursuant to section 12 shall show as 
     an expense in the annual report of such issuer filed under 
     subsection (a)(2), the fair value of all options to purchase

[[Page H6012]]

     the stock of the issuer granted after December 31, 2004, to a 
     named executive officer of the issuer.
       ``(3) Fair value.--
       ``(A) In general.--The fair value of an option to purchase 
     the stock of the issuer that is subject to paragraph (2) 
     shall--
       ``(i) be equal to the value that would be agreed upon by a 
     willing buyer and seller of such option, who are not under 
     any compulsion to buy or sell such option; and
       ``(ii) take into account all of the characteristics and 
     restrictions imposed upon the option.
       ``(B) Pricing model.--To the extent that an option pricing 
     model, such as the Black-Scholes method or a binomial model, 
     is used to determine the fair value of an option, the assumed 
     volatility of the underlying stock shall be zero.
       ``(4) Exemptions.--
       ``(A) Small business issuers.--This subsection shall not 
     apply to an issuer, if--
       ``(i) the issuer has annual revenues of less than 
     $25,000,000;
       ``(ii) the issuer is organized under the laws of the United 
     States, Canada, or Mexico;
       ``(iii) the issuer is not an investment company (as such 
     term is defined under section 3 of the Investment Company Act 
     of 1940 (15 U.S.C. 80a-3));
       ``(iv) the aggregate value of the outstanding voting and 
     non-voting common equity securities of the issuer held by 
     non-affiliated parties is less than $25,000,000; and
       ``(v) in the case of an issuer that meets the criteria in 
     clauses (i) through (iv) and is a majority-owned subsidiary, 
     the parent of the issuer meets the requirements of this 
     paragraph.
       ``(B) Delayed effectiveness.--The requirements of this 
     subsection shall not apply to an issuer before the end of the 
     3-year period beginning on the date of the completion of the 
     initial public offering of the securities of the issuer, and 
     shall only apply to an option to purchase the stock of an 
     issuer granted after such date.''.

     SEC. 3. PROHIBITION ON EXPENSING AND ECONOMIC IMPACT STUDY.

       (a) Prohibition.--Section 19(b) of the Securities Act of 
     1933 (15 U.S.C. 77s(b)) is amended by adding at the end the 
     following:
       ``(3) Prohibition on expensing standards.--
       ``(A) In general.--The Commission shall not recognize as 
     `generally accepted' any accounting principle relating to the 
     expensing of stock options unless--
       ``(i) it complies with the requirements of subparagraph 
     (B); and
       ``(ii) the economic impact study required under section 
     3(b) of the Stock Option Accounting Reform Act has been 
     completed.
       ``(B) Requirements.--A standard referred to in subparagraph 
     (A) shall require that--
       ``(i) if an option to purchase the stock of an issuer that 
     is subject to the requirements of section 13(m) of the 
     Securities Exchange Act of 1934 is exercised--

       ``(I) any expense that had been reported under that section 
     13(m) with respect to such option shall be recomputed as of 
     the date of exercise and shall be equal to the difference 
     between the price of the underlying stock and the exercise 
     price; and
       ``(II) to the extent the recomputed amount differs from the 
     amount previously reported under section 13(m) with respect 
     to such option, the difference shall be reported in the 
     fiscal year in which the option is exercised as a reduction 
     or increase, as the case may be, of the total expense 
     required to be reported under that section 13(m) during that 
     fiscal year;

       ``(ii) if an option to purchase the stock of an issuer that 
     is subject to the requirements of section 13(m) of the 
     Securities Exchange Act of 1934 is forfeited or expires 
     unexercised, any expense that had been reported under that 
     section 13(m) with respect to such option shall be reported 
     in the fiscal year in which the option expires or is 
     forfeited as a reduction of the total expense required to be 
     reported under that section 13(m) during that fiscal year; 
     and
       ``(iii) to the extent that any reduction required under 
     clause (i) or (ii) exceeds total option expenses for any 
     fiscal year, such excess shall be reported as income with 
     respect to options to purchase the stock of the issuer.''.
       (b) Economic Impact Study.--Not later than 1 year after the 
     date of enactment of this Act, the Secretary of Commerce and 
     the Secretary of Labor shall conduct and complete a joint 
     study on the economic impact of the mandatory expensing of 
     all employee stock options, including the impact upon--
       (1) the use of broad-based stock option plans in expanding 
     employee corporate ownership to workers at a wide range of 
     income levels, with particular focus upon non-executive 
     employees;
       (2) the role of such plans in the recruitment and retention 
     of skilled workers;
       (3) the role of such plans in stimulating research and 
     innovation;
       (4) the effect of such plans in stimulating the economic 
     growth of the United States; and
       (5) the role of such plans in strengthening the 
     international competitiveness of businesses organized under 
     the laws of the United States.

     SEC. 4. IMPROVED EMPLOYEE STOCK OPTION TRANSPARENCY AND 
                   REPORTING DISCLOSURES.

       (a) Enhanced Disclosures Required.--Not later than 180 days 
     after the date of enactment of this Act, the Commission 
     shall, by rule, require each issuer filing a periodic report 
     under section 13(a) or 15(d) of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78m, 78o(d)) to include in such report 
     more detailed information regarding stock option plans, stock 
     purchase plans, and other arrangements involving an employee 
     acquisition of an equity interest in the company. Such 
     information shall include--
       (1) a discussion, written in ``plain English'', in 
     accordance with the Plain English Handbook published by the 
     Office of Investor Education and Assistance of the 
     Commission, of the dilutive effect of stock option plans, 
     including tables or graphic illustrations of such dilutive 
     effects;
       (2) expanded disclosure of the dilutive effect of employee 
     stock options on the issuer's earnings per share;
       (3) prominent placement and increased comparability and 
     uniformity of all stock option related information;
       (4) the number of outstanding stock options;
       (5) the weighted average exercise price of all outstanding 
     stock options; and
       (6) the estimated number of stock options outstanding that 
     will vest in each year.
       (b) Definitions.--As used in this section:
       (1) Commission.--The term ``Commission'' means the 
     Securities and Exchange Commission.
       (2) Issuer.--The term ``issuer'' has the meaning provided 
     in section 2(a)(7) of the Sarbanes-Oxley Act of 2002 (15 
     U.S.C. 7201(a)(7)).
       (3) Equity interest.--The term ``equity interest'' includes 
     common stock, preferred stock, stock appreciation rights, 
     phantom stock, and any other security that replicates the 
     investment characteristics of such securities, and any right 
     or option to acquire any such security.

     SEC. 5. PRESERVATION OF AUTHORITY.

       Nothing in this Act shall be construed to limit the 
     authority over the setting of accounting principles by any 
     accounting standard setting body whose principles are 
     recognized by the Securities and Exchange Commission under 
     section 19(b)(1) of the Securities Act of 1933 (15 U.S.C. 
     77s(b)(1)).

  The CHAIRMAN pro tempore. No amendment to the committee amendment is 
in order except those printed in House Report 108-616. Each amendment 
may be offered only in the order printed in the report, by a Member 
designated in the report, shall be considered read, shall be debatable 
for the time specified in the report, equally divided and controlled by 
a proponent and an opponent, shall not be subject to amendment, and 
shall not be subject to demand for division of the question.
  It is now in order to consider amendment No. 1 printed in House 
Report 108-616.


                  Amendment No. 1 Offered by Mr. Oxley

  Mr. OXLEY. Mr. Chairman, I offer an amendment.
  The CHAIRMAN pro tempore. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 1 offered by Mr. Oxley:
       At the end of subsection (m)(4)(B) of the matter proposed 
     to be inserted by section 2 of the bill, strike the close 
     quotation mark and following period and insert the following:
       ``(5) Voluntary expensing.--Notwithstanding the 
     requirements of this subsection, issuers may elect to expense 
     the fair value of all officer and employee stock options in 
     the annual report of such issuer under subsection (a)(2), in 
     accordance with the expensing alternative of Statement of 
     Financial Accounting Standards Number 123, and any such 
     issuer making such election in the annual report for a fiscal 
     year shall not be subject to paragraphs (2) through (4) of 
     this subsection for such fiscal year.''.
       At the end of paragraph (3)(B) of the matter proposed to be 
     inserted by section 3 of the bill, strike the close quotation 
     mark and following period and insert the following:
       ``(C) Exception for voluntary expensing.--Nothing in this 
     paragraph or in any other provision of the Stock Option 
     Accounting Reform Act shall prevent the Commission from 
     continuing to recognize the expensing alternative of 
     Statement of Financial Accounting Standards Number 123 as 
     part of generally accepted accounting principles for issuers 
     that elect to expense the fair value of all officer and 
     employee stock options in the annual report of such issuer 
     pursuant to section 13(m)(5) of the Securities Exchange Act 
     of 1934.''.

  The CHAIRMAN pro tempore. Pursuant to House Resolution 725, the 
gentleman from Ohio (Mr. Oxley) and a Member opposed each will control 
5 minutes.
  The Chair recognizes the gentleman from Ohio (Mr. Oxley).
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  The manager's amendment to H.R. 3574 makes an important clarification 
to the bill as reported by the Committee on Financial Services. The 
bill was never designed to prevent any company that either currently 
expenses its employee stock options or wishes to do so in the future 
from doing so. The manager's amendment makes it explicit that a company 
that wishes to voluntarily expense its employee stock options may do so 
based on the expensing rules that companies are using today to expense 
their stock options.
  The bill's requirement that companies expense the employee stock 
options with the five top executives would not apply to any company 
that voluntarily expenses all of its employee stock options under 
current rules.
  Mr. Chairman, this is an important distinction, because if companies 
feel

[[Page H6013]]

it is important to expense these stock options, if they feel they may 
perhaps have a competitive advantage over competitors, they may choose 
to do so. It literally is a free country, and they have that 
obligation. This amendment simply clarifies that option that all 
companies, publicly traded companies, have; and I urge my colleagues to 
support the manager's amendment.
  Mr. Chairman, I reserve the balance of my time.
  Mr. KANJORSKI. Mr. Chairman, we have no objection to the manager's 
amendment and support it.
  Mr. OXLEY. Mr. Chairman, I yield back the balance of my time.
  The CHAIRMAN pro tempore. The question is on the amendment offered by 
the gentleman from Ohio (Mr. Oxley).
  The amendment was agreed to.
  The CHAIRMAN pro tempore. It is now in order to consider amendment 
No. 2 printed in House Report 108-616.


                 Amendment No. 2 Offered by Mr. Sherman

  Mr. SHERMAN. Mr. Chairman, I offer an amendment.
  The CHAIRMAN pro tempore. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 2 offered by Mr. Sherman:
       In subsection (m) of the matter proposed to be inserted by 
     section 2 of the bill, strike
       ``(3) Fair value.--
       ``(A) In general.--The''.

       and insert
       ``(3) Fair value.--The''.
       In subsection (m)(3) of the matter proposed to be inserted 
     by section 2 of the bill, strike subparagraph (B).

  The CHAIRMAN pro tempore. Pursuant to House Resolution 725, the 
gentleman from California (Mr. Sherman) and a Member opposed each will 
control 5 minutes.
  The Chair recognizes the gentleman from California (Mr. Sherman).
  Mr. SHERMAN. Mr. Chairman, I yield myself 1 minute.
  Mr. Chairman, this bill is packaged as a bill that requires the 
expensing of stock options that are issued to the top five executives 
of every company. This amendment allows the bill to achieve its stated 
purpose.
  The bill, in fact, when one reads the fine print, says that in 
calculating the value of options given to the top five executives of 
the company, one does not use either of the two formulas that are 
established. One does not use the best estimate. But one instead 
assumes that the stock does not go up or down in price over time, an 
absurd assumption, an assumption that yields a zero valuation for the 
stock options given to many top executives in this country.
  If we adopt this amendment, then the bill will at least achieve the 
purpose it sets, namely, that we will have a fair expense reported on 
the income statement for options given to the top five executives.
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I rise in opposition to the amendment, and I 
yield myself such time as I may consume.
  Mr. Chairman, as I say, we have debated this amendment in committee, 
and it was defeated on a vote of 13 ayes and 43 nays, precisely because 
while the gentleman's intentions I think are good, as debate in the 
committee clearly showed, this amendment, should it be adopted, would, 
frankly, confuse investors far more than it would educate them.

                              {time}  1315

  An options value is estimated by applying an options pricing model at 
the date the option is granted.
  It was interesting that one national accounting firm, which 
incidentally supports expensing, wrote FASB last year to support zero 
volatility, something that the Sherman amendment would bring into 
question. ``We believe that using zero as the expected volatility of 
the stock price would increase the reliability of option values.''
  So what we are trying to do with the underlying bill is not only 
provide the top five executives with the need to expense stock options, 
but also to give the investing public the kind of information they need 
so they can compare apples to apples in this regard; and unfortunately, 
the Sherman amendment does just quite the opposite.
  So for those reasons, I would oppose the Sherman amendment.
  Mr. Chairman, I reserve the balance of my time.
  Mr. SHERMAN. Mr. Chairman, I yield 2 minutes to the gentleman from 
Delaware (Mr. Castle).
  Mr. CASTLE. Mr. Chairman, I rise in very, very strong support of the 
Sherman amendment. We need to understand there is $126 billion in stock 
options granted in any one year, there was in 2000 in the United States 
of America. We are talking about small potatoes here, and frankly, the 
underlying bill here, in my judgment, is completely wrong in terms of 
the direction that the country and the stockholders are going. Who is 
speaking here for the stockholders of America, for those who have their 
value diluted because of what happens with stock options without any 
expensing whatsoever?
  I yield to the gentleman from California (Mr. Sherman) in terms of 
his knowledge about accounting, but what I know about volatility is 
that without volatility, you would not have anybody in the stock market 
whatsoever. Without volatility, you really have no value in terms of 
the stock options which are being granted. Without volatility, that 
means you basically are not really expensing the stock options so that 
the other stockholders and other potential investors can see what is 
happening out there.
  For all these reasons, I believe absolutely we should pass this 
amendment in order to insert the measure of what these expenses are 
really worth by putting the volatility back into it. It is almost 
impossible to determine value if you do not do that.
  And I might just add, while we are talking about this, that in the 
area of accounting, we can talk about Black-Scholes being imprecise and 
laugh about it, whatever it might be, and certainly it is imprecise, 
but so is sometimes the good will, depreciation and a whole series of 
other accounting measures that are used in determining the values of 
corporations. It is not all quite as black and white as everybody would 
like.
  So for all these reasons, but mostly because it is the stockholders, 
the shareholders who are suffering, by far the largest bulk. It is not 
the CEOs running the companies. It is not even the employees of the 
companies. It is the stockholders of the companies who are, in my 
judgment, being faulted by the methodology which we use now.
  For all these reasons, I would encourage everyone here to consider 
supporting the Sherman amendment.
  Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentleman from 
Pennsylvania (Mr. Toomey).
  Mr. TOOMEY. Mr. Chairman, I thank the chairman for yielding me this 
time and commend him and the subcommittee chairman for their work on 
this legislation, as well as my colleagues on the other side of the 
aisle.
  But I wanted to continue this discussion that we have had in 
committee, that I have had with the gentleman from California about 
this issue.
  See, I do not think that the best argument for having zero as our 
volatility number is actually a plausible argument, that valuing these 
options is inherently a very difficult task and assigning the 
appropriate volatility is very difficult.
  I prefer the argument that we should not be expensing these at all. 
See, I think what some of my colleagues are confusing here is the 
difference between value and expense. Nobody is disputing that a stock 
option has value, but what I would dispute very vigorously is that 
issuing an option is equal to an expense on the part of the company 
issuing it.
  Let us look at what happens. You grant an option to an employee. 
There is no cash outlay, and in fact, if that option expires worthless, 
there never will be a cash outlay. And, yet, if this amendment were to 
be adopted and became law, you would have to show an expense on an 
income statement in which no expense ever is incurred. And it is not 
just the options that expire worthless; in most cases, options that 
expire in the money are not bought out by the company. If they are, 
then current law requires that that cash event be represented on the 
income statement as it should be. But in fact, that expiration, most 
options that expire in the money are dealt with by a company issuing 
new shares. Again, there is no expense. There is no cash event. It 
never happens. There is a dilution in earnings, and that needs to be 
represented.

[[Page H6014]]

  But what the gentleman is proposing in this amendment is to make a 
difficult situation worse.
  I respect the compromise that is in this bill. If I could write it, I 
would write it differently, but I think it makes much more sense than 
what FASB is proposing and much more sense than what this amendment 
suggests, because this amendment suggests that we knowingly and 
systematically list an expense on an income statement even when it is 
not going to be incurred, and we never correct for that. So I would 
urge my colleagues to vote ``no'' on this amendment.
  Mr. SHERMAN. Mr. Chairman, I yield myself such time as I may consume.
  We are told by the gentleman from Pennsylvania that you should not 
list an item as expense on the income statement unless cash leaves the 
company. What if stock options were given to a health insurance company 
in return for providing health insurance to the employees? Everyone in 
this hall agrees that would be listed as an expense. What if a company 
issues stock in return for employee services or stock in return for 
supplies? Everyone agrees that would be listed as an expense.
  Again and again, when a company is getting supplies, when it is 
rewarding its rank-and-file employees, when it is providing health 
care, everybody agrees you list that as an expense, even if no cash 
leaves the treasury of the company. And, yet, we are asked to make one 
exception, and that is for executive compensation.
  Keep in mind the vast majority of these options are going to top 
executives. Thirty percent of the options are going to just the top 
five individuals. Now, there is a compromise that is set forward by the 
authors of this bill, and that is that at least the options going to 
the top five are going to be expensed. That is the compromise stated in 
the title of the bill.
  And yet, when you look at the details, you see that roughly a quarter 
of the companies in this country expense stock options. Some use the 
binomial method. Some use Black-Scholes. No one uses the phony method, 
also known as the minimum-value method, under which you say you are 
expensing stock options, but assume zero volatility, a unique approach 
used only to conceal what the bill would accomplish.
  Mr. Chairman, I yield back the balance of my time.
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  Let me say this debate raged in the committee. I think the committee 
made a wise choice in defeating that. It only got 14 votes and 33 
against because of some of the arguments that were purported from 
members on both sides of the aisle regarding the innate confusion the 
gentleman's amendment would cause to the investing public.
  Mr. Chairman, I yield such time as he may consume to the gentleman 
from Pennsylvania (Mr. Toomey).
  Mr. TOOMEY. Mr. Chairman, I thank the gentleman for yielding.
  I would just make one brief further point, and that is, I think what 
accounting is supposed to be all about is providing the most accurate 
information, and by ``accurate,'' I think we mean information that 
either immediately or at least in time converges with economic reality. 
We do not want corporations to be showing income or expenses that never 
occur. That is common sense, but that is the reality we are dealing 
with here.
  And what this amendment does is it moves us away from that 
convergence to economic reality, and I think the underlying bill does a 
better job of capturing that economic reality, which ultimately in the 
case of stock options, I believe, should be primarily captured by 
showing the dilution that occurs in the form of new stock that is 
issued.
  Mr. OXLEY. Mr. Chairman, I yield as much time as he might consume to 
the gentleman from Kansas (Mr. Ryun).
  Mr. RYUN of Kansas. Mr. Chairman, I want to speak in opposition to 
the amendment. I want to thank the gentleman from Louisiana (Mr. Baker) 
for drafting this thoughtful and thorough legislation.
  I believe the approval of H.R. 3574 is essential to the economic 
well-being of many businesses, most significantly, many small 
businesses. As for the gentleman's amendment, while H.R. 3574 only 
requires the expensing of stock options granted to the top five 
employees of a given company, it is still necessary to accurately 
determine a value for the option to be expensed. Determining this value 
has proven tedious at best and extremely inconsistent and inaccurate at 
worst.
  One of the reasons for the unreliability of these valuations is the 
requirement to factor in the anticipated volatility of a company's 
future stock prices. The value has proven virtually impossible and 
actually difficult to determine and is highly susceptible to error and 
manipulation.
  I urge my colleagues to reject this amendment.
  Mr. Chairman, I want to speak in opposition to the gentleman's 
amendment.
  Mr. Chairman, I want to thank my friend, Mr. Baker, for drafting this 
thoughtful and thorough legislation. I believe that the approval of 
H.R. 3574 is essential to the economic wellbeing of many businesses, 
most significantly many small businesses.
  As for the gentleman's amendment, while H.R. 3574 only requires the 
expensing of stock options granted to the top five employees of a given 
company, it is still necessary to accurately determine a value for the 
options to be expensed. Determining this value has proven tedious at 
best and extremely inconsistent and inaccurate at worst.
  One of the reasons for the unreliability of these valuations is the 
requirement to factor in the anticipated volatility of a company's 
future stock price. This value has proven virtually impossible to 
accurately determine and is highly susceptible to error and 
manipulation. By setting the volatility to zero, we greatly reduce the 
possibility of manipulation. Some have incorrectly stated that setting 
volatility to zero will result in an expense value of zero. This is 
inaccurate. Other factors, including the underlying price of the stock, 
the exercise price of the option, and the life of the option will still 
be used to determine a value for the option.
  I urge my colleagues to defeat the amendment.
  Mr. OXLEY. Mr. Chairman, I yield back the balance of my time.
  The CHAIRMAN pro tempore (Mr. LaHood). The question is on the 
amendment offered by the gentleman from California (Mr. Sherman).
  The question was taken; and the Chairman pro tempore announced that 
the noes appeared to have it.
  Mr. SHERMAN. Mr. Chairman, I demand a recorded vote.
  The CHAIRMAN pro tempore. Pursuant to clause 6 of rule XVIII, further 
proceedings on the amendment offered by the gentleman from California 
(Mr. Sherman) will be postponed.


                Amendment No. 3 Offered by Mrs. Maloney

  Mrs. MALONEY. Mr. Chairman, I offer an amendment.
  The CHAIRMAN pro tempore. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 3 offered by Mrs. Maloney:
       At the end of the bill, insert the following:

     SEC. 5. CONFIRMATION OF S.E.C. AUTHORITY.

       Nothing in this Act shall be construed to impair or limit 
     the authority of the Commission to establish accounting 
     principles or standards on its own initiative as the 
     Commission deems necessary in the public interest or for the 
     protection of investors.

  The CHAIRMAN pro tempore. Pursuant to House Resolution 725, the 
gentlewoman from New York (Mrs. Maloney) and a Member opposed each will 
control 5 minutes.
  The Chair recognizes the gentlewoman from New York (Mrs. Maloney).
  Mrs. MALONEY. Mr. Chairman, I yield myself such time as I may 
consume.
  My amendment preserves the full power of the SEC to determine what 
companies report and how they report it. This power was given to the 
SEC in 1934 after the accounting scandals in the 1920s and 1930s. My 
amendment preserves the current authority to protect investors and the 
public interest.
  Under present law, and I quote from the law, if ``the SEC determines 
that the public interest or the protection of investors so requires,'' 
it can set an accounting standard even if it has to override another 
law to do so, but only to protect the public interest.
  This underlying bill takes away the SEC's power to protect investors. 
It would prevent the SEC from adopting any accounting standard, except 
the one set in the underlying bill.
  So I would urge my colleagues on both sides of the aisle to be very 
careful with their vote on this amendment. If you vote against this 
amendment, you will be walking away from accounting standards that are 
set on the

[[Page H6015]]

principle of protecting the 84 million investors in our country and 
moving to a different standard, one that does not focus on protecting 
investors but gives a competitive advantage to a small number of 
companies.
  This amendment protects investors. This amendment saves independent 
accounting standard setting, and this amendment prevents this body from 
making what Alan Greenspan called, ``a bad mistake.'' And it is 
expressly supported by Arthur Levitt, Warren Buffett, John Bogle, the 
founder of the first mutual fund, and many other financial experts.
  So I hope that this body will listen to the overwhelming views of 
financial experts and professionals and protect investors by supporting 
my amendment.
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I rise in opposition to the amendment, and I 
yield myself such time as I may consume.
  Let me first say, while I oppose the amendment, the gentlewoman from 
New York has made an excellent contribution to the committee on a 
number of fronts, and we appreciate her efforts. We just happen to 
disagree on this particular amendment.
  Mr. Chairman, I yield such time as he may consume to the gentleman 
from Louisiana (Mr. Baker).
  Mr. BAKER. Mr. Chairman, I thank the gentleman for yielding me this 
time.
  This, of course, is an important amendment, and we should not forget 
for a moment that the lawmaking business is a very difficult course to 
follow. If one introduces a measure in the House of Representatives, it 
may be subject to numerous hearings and, of course, examination by many 
people over the course of many months, in some cases, years. It then 
must go to the United States Senate, where it goes through a similar 
process.
  Assuming the House and Senate may disagree, there is an extensive 
conference committee process. Ultimately, if passed by both Houses as a 
conference committee report, it goes on to the President of the United 
States, either for his signature or for his veto.
  What is contemplated by the gentlewoman's amendment is to 
dramatically alter the course of public policy consideration. If one 
were to take, for example, the 1934 Securities Act, considered after 
many, many months of deliberation and debate, I would point out that we 
start in the United States Congress or in the United States Senate.
  Both Houses meet, deliberate, hear witnesses, stakeholders, public 
comment, lobbyists abound, even FASB running around through the halls, 
and ultimately we pass a bill out that makes its way to the White 
House, and the White House may or may not sign or choose to veto such a 
proposal.
  The effect of the gentlewoman's amendment from New York would be to 
say after that lengthy process which, by the way, in the case of the 
stock option expensing debate has raged now for some time, after 
considerable hearings within the House Committee on Financial Services, 
even the cursory examination in the Committee on Energy and Commerce, 
now this public debate on the House floor.
  And might I remind you we are now officially in an open public 
comment period by FASB, which we all of course know is closed, but for 
the sake of public discourse, we have an open public comment period. I 
would suggest the Congress is getting ready to comment on the matter.
  What some are proposing with the Maloney amendment in the last 
circling at the end of the chart is that it would be the ``oops'' 
provision. The SEC could say, ``Oops, the Congress got it wrong. The 
President got it wrong. We are simply going to disregard the actions of 
our public policymakers and decide we are going to do it differently.''

                              {time}  1330

  Nowhere in the text of the public policy is there an arbitrary and 
capricious grant of authority for any bureaucratic enterprise to set 
aside the public policy determinations of the United States Congress. 
This, in fact, would be a first.
  Now, I understand the dispute over the underlying reform proposal; 
but this, I suggest to Members of the House, is not an appropriate 
remedy for the concerns expressed by Members opposed to this H.R. 3574.
  Should you be opposed to it, I suggest you vote against this measure 
and simply vote against the bill on final passage. However, I, for one, 
think it an extremely well-crafted remedy to the identified problem and 
urge my colleagues to support it on final passage.
  Mrs. MALONEY. Mr. Chairman, I yield 1 minute to the gentleman from 
Delaware (Mr. Castle).
  Mr. CASTLE. Mr. Chairman, I have a different solution than the 
gentleman from Louisiana (Mr. Baker). I would suggest that we vote for 
the Maloney amendment and then against the underlying legislation, 
because the Maloney amendment would reinstate where all of this should 
be with the SEC. Have we not had enough corporate malfeasance in this 
country, say for the last decade?
  We should let the SEC do the job that they are supposed to do. They 
are charged with the responsibility of dealing with this. It has the 
authority to establish financial reporting standards applicable to 
public companies since its inception. This bill would limit that 
authority for the first time ever, preventing the SEC from adopting an 
accounting standard for stock options even if it finds that it is 
needed to protect the interest of the public or the investors.
  It prevents the SEC from performing one of its most important 
functions, establishing those accounting standards. It is that simple. 
That is where the expertise is.
  I love the chart the gentleman from Louisiana (Mr. Baker) had up 
there because eventually it showed that the regulators are the ones who 
are going to make the decisions. Perhaps they are better equipped to 
make these kinds of decisions. Perhaps people should sit down and talk 
to the FASB people and to the SEC people and understand that is where 
the decision should be made with respect to the expensing of stock 
options. Vote for the Maloney amendment.
  The CHAIRMAN pro tempore (Mr. LaHood). The time remaining is 1\1/2\ 
minutes on each side.
  Mrs. MALONEY. Mr. Chairman, I yield the balance of my time to the 
gentleman from Massachusetts (Mr. Frank), the ranking member of the 
Committee on Financial Services.
  The CHAIRMAN pro tempore. The gentleman is recognized for 90 seconds.
  Mr. FRANK of Massachusetts. Mr. Chairman, I welcome the gentleman 
from Louisiana's (Mr. Baker) concern for congressional prerogative and 
not excessive delegation. I just wish it extended to the war power and 
a few other trivial matters.
  On this particular subject, the gentlewoman's amendment is quite 
sensible. We have had criticism of the FASB arguing that they are going 
to make a decision that has broader public policy implications on 
grounds that are too technical. The gentlewoman's amendment gets us out 
of that box. And I have some sympathy with that argument because I do 
not think the FASB ought to go ahead, but I do not want to set the 
precedent of overturning the regulators.
  What her amendment does is to say, okay, it will not be up to the 
FASB, making a narrow technical accounting decision; it will be up to 
the Securities and Exchange Commission and specifically instructs them 
to take into account the public interest. In other words, it seems to 
me that this is what Members have been saying, that this decision 
obviously should not ignore accounting principles but that should be 
leavened by a concern for the public interest. So it is not simply a 
repeat of the whole bill. It does say it will not be up only to the 
FASB as current law would allow it, but it does say we will let the SEC 
make that decision.
  As to the argument this would somehow let the SEC overrule Congress, 
we would be voting to say to the SEC, here, we think based on invested 
protection and the public interest, you should make that decision. It 
would not be setting any precedent of overruling us or giving away our 
authority at all.
  I would love to have a consistent regard for congressional authority. 
I wish we could do it with regard to overtime rules and the war powers. 
This is not one of those problems.

[[Page H6016]]

  Mr. OXLEY. Mr. Chairman, I yield 45 seconds to the gentlewoman from 
California (Ms. Eshoo), who has been enormously helpful throughout this 
process and, in fact, testified before the Committee on Financial 
Services on this legislation.
  Ms. ESHOO. Mr. Chairman, I thank the gentleman from Ohio (Mr. Oxley) 
for yielding me time.
  Mr. Chairman, I oppose this amendment, and let me state very clearly 
why. Number one, this amendment allows the SEC to override what the 
Congress wants. I think that stands our process on its head. And I am 
not suggesting that our process is always perfect and tidy. I thought 
that when I came here that when the Congress legislates and the 
executive signs on to that and a bill becomes law that it is up to the 
executive branch of government to carry that out.
  We have gotten nowhere with this accounting board. They do not want 
to sit down and hear the other side of this, which is economic. And so 
that is why I urge my colleagues to reject the amendment.
  It essentially guts the bill. If you are opposed to stock options for 
rank-and-file employees, be opposed to that; but to do this the other 
way around, I think really begs the question.
  The CHAIRMAN pro tempore. The question is on the amendment offered by 
the gentlewoman from New York (Mrs. Maloney).
  The question was taken; and the Chairman pro tempore announced that 
the noes appeared to have it.
  Mrs. MALONEY. Mr. Chairman, I demand a recorded vote.
  The CHAIRMAN pro tempore. Pursuant to clause 6 of rule XVIII, further 
proceedings on the amendment offered by the gentlewoman from New York 
(Mrs. Maloney) will be postponed.
  It is now in order to consider amendment No. 4 printed in House 
Report 108-616.


                Amendment No. 4 Offered by Mr. Kanjorski

  Mr. KANJORSKI. Mr. Chairman, I offer an amendment.
  The CHAIRMAN pro tempore. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 4 offered by Mr. Kanjorski:
       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Accounting Standards 
     Integrity Act''.

     SEC. 2. FINDINGS.

       Congress finds the following:
       (1) The Securities and Exchange Commission has broad 
     authority to prescribe accounting standards applicable to 
     issuers of publicly traded securities, and generally has 
     relied on the Financial Accounting Standards Board to 
     establish generally accepted accounting standards for private 
     sector businesses.
       (2) Objective accounting standards are essential to the 
     efficient functioning of the economy and the capital markets, 
     as investors, creditors, analysts, auditors, and others rely 
     on credible, transparent, and comparable results of 
     operations in making decisions regarding the allocation of 
     capital.
       (3) Congress recently acknowledged the importance of the 
     accounting standard-setting process to our capital markets 
     and strengthened the the Financial Accounting Standards 
     Board's independence as part of the Sarbanes-Oxley Act of 
     2002, which passed the House of Representatives and the 
     Senate by votes of 423-3 and 99-0, respectively.
       (4) Congress, in the Sarbanes-Oxley Act of 2002, also 
     recognized the importance of the convergence of United States 
     and international accounting standards on high quality 
     accounting standards.
       (5) The United States capital markets enjoy a competitive 
     advantage as a result of the high quality and integrity of 
     our financial reporting system and the accounting standards 
     that underlie it and would lose that advantage over foreign 
     markets if our accounting standards and policies are 
     considered less than objective.
       (6) Investors benefit from independent and fair accounting 
     standards that are free from undue political interference.
       (7) The rulemaking authority and credibility of the 
     Financial Accounting Standards Board may be irreparably 
     damaged by legislation that preempts the existing public and 
     fair deliberative process.
       (8) The Securities and Exchange Commission of the United 
     States has the ultimate authority over the content and 
     process for setting standards for issuers of publicly traded 
     securities.

     SEC. 3. SENSE OF THE CONGRESS.

        It is the sense of Congress that--
       (1) preserving the integrity of the accounting standard-
     setting process and the independence of the Financial 
     Accounting Standards Board is crucial to the functioning and 
     transparency of the financial reporting systems and capital 
     markets of the United States; and
       (2) the Securities and Exchange Commission should be 
     permitted to recognize or adopt new accounting standards 
     without Congress or other parties intervening in the process 
     before it is completed to override or delay recognition of 
     those standards.

     SEC. 4. SECURITIES AND EXCHANGE COMMISSION MANDATE.

       Consistent with its established procedures, the Securities 
     and Exchange Commission shall--
       (1) oversee the process of accounting standard-setting to 
     ensure a process that assures that all of the comments, 
     concerns, and recommendations gathered during the comment 
     period on any proposal regarding equity-based compensation 
     are subject to appropriate review; and
       (2) before a final standard is adopted, ensure that any 
     modifications are made that are appropriate for the purposes 
     of adopting the highest quality accounting standards that 
     will best serve the purposes of our financial reporting 
     system and the United States economy as a whole.

  The CHAIRMAN pro tempore. Pursuant to House Resolution 725, the 
gentleman from Pennsylvania (Mr. Kanjorski) and the gentleman from Ohio 
(Mr. Oxley) each will control 10 minutes.
  The Chair recognizes the gentleman from Pennsylvania (Mr. Kanjorski).
  Mr. KANJORSKI. Mr. Chairman, I yield myself such time as I may 
consume.
  Mr. Chairman, the Kanjorski-Castle-Dingell-Maloney-Emanuel substitute 
is simple in its structure and intent. In short, it would replace the 
current text of H.R. 3574 with language designed to preserve the 
independence of the Financial Accounting Standards Board in 
establishing accounting standards.
  Specifically, the substitute incorporates a series of findings 
concerning SEC authority over standards setting and the importance of 
credible accounting standards to the economy and investors. It also 
puts forward a sense of Congress that preserving the integrity of the 
accounting standards setting process is crucial to the financial 
reporting systems and markets.
  Finally, it provides direction to the SEC to oversee the process of 
setting standards for equity-based compensation to ensure that all 
comments, including those of the high-tech industry, are appropriately 
reviewed and that any modifications necessary to ensure the highest 
quality accounting standards are adopted.
  Mr. Chairman, deciding what should be accounted for and how it should 
be accounted for is the job of the Financial Accounting Standards 
Board, not the Congress. As a Washington Post recently editorialized, 
``The accounting standards, like interest rates and determinations of 
drug safety, should not be set by Congress.'' They should be set by the 
experts at the Financial Accounting Standards Board.
  Moreover, we should not start proceeding down a slippery slope of 
establishing accounting standards via political process. As the 
Financial Accounting Foundation has noted, ``Once Congress starts 
setting accounting standards through its political process, the 
integrity of the United States accounting standards-setting and the 
credibility of the U.S. financial reporting will be dangerously 
compromised.''
  In short, we should ensure that the Congress does not become an 
appellate court for accounting standards. I hope my colleagues, 
therefore, would support our bipartisan substitute.
  Mr. Chairman, I reserve the balance of my time.
  Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentleman from 
California (Mr. Dreier), the chairman of the Committee on Rules.
  Mr. DREIER. Mr. Chairman, I thank my friend for yielding me time. I 
congratulate him on the role that he has played in getting us to this 
point.
  I rise in strong opposition to this substitute because just as the 
amendment that was proposed by my friend, the gentlewoman from New York 
(Mrs. Maloney), it basically guts the bill. I believe it is very 
important for us to recognize that the United States Congress has a 
very important role here. We all recognize the independence of the 
Financial Accounting Standards Board, the Securities and Exchange 
Commission, but the United States Congress has oversight 
responsibility. And we have important oversight responsibility, 
especially in light of the fact that we are looking at a provision 
which is so amorphous, because no one

[[Page H6017]]

has been able to actually quantify exactly what the value of these 
options is. Whether it is Black-Scholes or binomial, virtually everyone 
has come to the conclusion that it is impossible, impossible for us to 
accurately do it no matter how hard we try to base it on a balance 
sheet.
  But I think the important point that needs to be raised and why I am 
so strongly opposed to this substitute, which again would undermine the 
whole basis of what it is that we are trying to do with this 
legislation, is we are forgetting the fact that while the Financial 
Accounting Standards Board, the SEC, may not focus on the issues of 
economic growth, every single day we, as Members of Congress, have a 
responsibility to do what we can to make sure that we take steps to 
unleash the creative potential of the American worker. And that 
improves the quality of life, the standard of living for people here in 
the United States and around the world.
  So I believe that it would be a real mistake for us to pass this 
substitute. We need to do everything we can to make sure that we as 
Members of the United States Congress encourage productivity, encourage 
innovation and make sure we have economic growth succeed.
  Oppose this substitute and support final passage on the bill.
  Mr. KANJORSKI. Mr. Chairman, I yield 3 minutes to the gentleman from 
Delaware (Mr. Castle), a co-sponsor of the substitute amendment.
  Mr. CASTLE. Mr. Chairman, I thank the gentleman for yielding me time.
  I would like to paint a little bit of a different picture here. Let 
us assume instead of Members of Congress, these 435 seats were filled 
with stockholders of various companies in this country, and I said, 
look, we have $126 billion worth of expenses to the various 
corporations, but you will never see it because we will do it without 
any kind of an entry whatsoever.
  That is what this is really all about. That is what we are dealing 
with.
  We are really not expensing stock options at all. It is, in my 
judgment, ludicrous to suggest that the bill which is before us 
actually expenses stock options without any kind of a volatility 
standard in them. So we are just letting that go on as we did for some 
time.
  But what is happening around the United States of America as we speak 
here today? What is happening is that a lot of people who are a heck of 
a lot more knowledgeable about corporations, equity and running of 
corporations than we are, are saying, hey, this is wrong; we need to 
expense stock options.
  I have these names here; I cannot go through them all. I do not have 
time to do that in the 3 minutes I have, but we recognize a lot of 
them. Alan Greenspan, Paul Volcker, Warren Buffet, names such as that. 
A significant number of people who have looked at this very carefully 
have come to the conclusion that we absolutely must do something about 
it.
  A number of stockholders, as well, have done the same thing. For the 
first time ever, public proxies opposed by corporations are actually 
passing in the United States of America, some 40 of them this year, 
because stockholders have actually spoken out and have actually made 
the statement that we are going to do something about this; we are 
going to start to expense stock options.
  Then, in addition to that, many corporations have looked at this and 
they said, we really do not need to have stock options unexpensed. We 
can expense them. We can live with that. Or we can issue restricted 
stock. There is a whole variety of ways in which we can compensate our 
executives and our other employees in a fair manner but in a way that 
would be shown to everybody who has invested in the corporation or 
might want to invest in the corporation.
  Then there are all those companies that are voluntarily expensing 
their stock options. Again, I do not have the time to go through all of 
them, but Amazon, American Express, AT&T, Capital One, Coca-Cola, 
Daimler Chrysler. You name it and they are all beginning to do it.
  The proposal which we have before us allows a regulatory body, the 
SEC working through FASB, to be able to come up with the fairest 
methodology of doing this. They have issued a rule. They are now 
listening to whatever the suggestions are. They should perhaps listen 
to Congress. I will be the first to tell you that Black-Scholes and 
other methodologies are not necessarily precise, but at least we are 
showing the expense of stock options so that all of the investors in 
this world, well over 50 percent of Americans who have invested in 
either mutual funds or corporations, will actually know what the heck 
is happening with those corporations.
  If we vote for this legislation, we are basically going to brush it 
right back under the rug, and that is not where it belongs. So I would 
encourage everybody to take a careful look at this substitute which I 
think makes a lot of sense in terms of giving FASB the right to 
continue to do what they are doing. I would encourage us to look at all 
the amendments which are outstanding at this point and to vote for them 
and to oppose the legislation when the final say comes for the 
stockholders and the people of America.

                              {time}  1345

  Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentleman from 
Louisiana (Mr. Baker), the chairman of the subcommittee.
  Mr. BAKER. Mr. Chairman, I thank the chairman for yielding me time.
  Since 1969, the current debate has been in some form or fashion 
engaged by FASB, 1969, 35 years. You would not think that that would be 
considered a new and innovative strategy to begin expensing or not 
expensing options.
  In 1995, the current methodology was adopted as a compromise. Yes, 
you can expense, if you so choose, determined by your board, driven 
perhaps by your shareholders, but you may also disclose in the 
footnotes.
  What are footnotes? They are notes in the annual report to 
shareholders. If you are a shareholder and you are worried about 
diluted effect, in other words, they are giving an option to someone, 
what does that do to my asset in the company, you can find that out 
with an examination of the annual report.
  To suggest that this is a new tactic developed by some executive in a 
back room to cheat shareholders or Americans out of value gained in 
their corporate investment is simply not accurate. This has been a 
practice common in the business world for many, many years.
  Now, at question is whether or not a handful of executives who are 
identified as abusing their privileges ought to be brought to some 
account. The answer with the passage of this bill is ``yes.'' If you 
are one of the top five executives who, by some accounts, hold the 
majority of options granted, you will now be required to expense those 
options at the time they are granted to the employee. It does not, 
however, require the large number of employees who benefit from 
investment, showing up early, staying late, investing their 
intellectual and personal capital into the business, who ultimately 
benefit from the overall growth and value of that corporation by seeing 
their shares increase in value.
  Forty-five percent of the venture capital in this country goes to the 
Silicon Valley, 45 percent, and the bulk of that goes to these new 
technology start-up companies. If my colleagues wish to see them in the 
future, please vote for H.R. 3574. It is rational reform headed in the 
right direction.
  Mr. KANJORSKI. Mr. Chairman, I yield 2 minutes to the gentleman from 
Massachusetts (Mr. Frank), the ranking member of the Committee on 
Financial Services.
  MR. FRANK of Massachusetts. Mr. Chairman, I am delighted to take up 
where the previous speaker left off.
  No, I do not want to see an end to venture capital in the Silicon 
Valley, and my argument is that this is greatly overblown. Here is the 
argument; we have just heard it.
  We have this very valuable resource in America, these high-tech 
start-ups. They are, on the whole, quite productive; they generate 
wealth, venture capitalists give them money, and we are being told that 
the venture capitalists in America are so stupid that a change in 
accounting, which represents no change in reality, will drive them away 
from this business.
  Now, I agree with those who say that the options are a good thing. I 
do not

[[Page H6018]]

think investors are misled. If you are going to invest in a company, 
read the footnotes, and if you did not read the footnotes when you 
invested, do not complain to me. I have got constituents with real 
problems.
  On the other hand, the argument that if you change the accounting and 
the reality is not changed, remember this has not been the issue. 
Nothing about what FASB is proposing would stop the issuance of 
options. It simply changes the way they are accounted for literally.
  The argument is that the most sophisticated investors in America will 
see a change in the accounting and they will say, Oh, my God, I had 
better stop investing in these companies; I did not know that they were 
doing this. Well, of course they know. Both sides know. No one is 
getting any new information out of this.
  The question is, if the accounting takes them from a gain on paper to 
a loss on paper with no change in reality, will that dry up capital?
  Now, I understand where if you are one company out of many and you 
did this and others did not, maybe you would be at a disadvantage, but 
are venture capitalists so dumb that they do not know what apparently 
everybody here does? I think they at least tie us in intelligence and 
understanding of economic processes. Are they going to say, Oh, now 
that the accounting is changed, now that this is expensed, even though 
the realities are the same, I will withdraw my investment? I am wholly 
skeptical of that argument.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 2 minutes to the 
gentlewoman from California (Ms. Eshoo).
  Ms. ESHOO. Mr. Chairman, I thank the gentleman from Ohio for the 
time, and Mr. Chairman, I would like to point out a few things here 
about the substitute.
  First of all, obviously I respect the gentleman from Pennsylvania, 
but I do not support the substitute, and let me tell my colleagues why.
  There was a chart that was here on the floor a little earlier of 
companies that expense. I wish we had a chart on the floor that 
demonstrated that those companies that do do not offer stock options to 
their rank-and-file employees.
  This debate is not about the venture capitalists. They are going to 
make their investments. They are going to pick and choose. But this is 
a magnet that attracts individuals to form new companies to allow them 
to grow and bring them up to profitability. We want to destroy this? 
Well, it is going to be in the hands of the Congress to do that. That 
is what this debate is about.
  Those that have problems with executive compensation have problems 
with it. Talk to the board of directors that form those packages, but 
rank-and-file employees do not get to negotiate their compensation or 
those packages. That is why their stock options are so important.
  This substitute does not address FASB's failure to develop accurate 
expensing formulas. They are unwilling to even road-test the standards 
that they are talking about.
  Now, I think that that is really unfair. That is why, as a Member of 
Congress, I stepped in. I think we should, and I think it is 
appropriate because we do have a responsibility to answer to the 
American people about economics and economic impacts on our people.
  That is why I urge my colleagues to reject and to vote against the 
Kanjorski substitute. It was rejected in the committee and it should be 
on the floor.
  Mr. KANJORSKI. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman 
from Ohio (Mr. Kucinich).
  Mr. KUCINICH. Mr. Chairman, I thank the gentleman for giving me an 
opportunity to talk about the Stock Option Accounting Reform Act.
  This is Alice in Wonderland. The notion that the legislation could be 
labeled with such a title originates in a statement by Warren Buffett, 
CEO of Berkshire Hathaway.
  Why does the second richest man in America oppose a bill that could 
conceivably make his company look more profitable? It is because the 
bill only makes the profit look better on paper, while the real bottom 
line does not change.
  The bill perpetuates an accounting gimmick that has harmed far too 
many investors. Think Enron.
  The bill's suggested method for valuing options could grossly 
underestimate their true value and provide an inflated view of a 
company's profits. That is misleading to investors who have a right to 
accurate information.
  Take Intel as an example. If this bill were law, Intel would be able 
to overstate their profits by $991 million. If every company can 
overstate profits, as this bill allows, then no investor will have 
accurate information and our markets will be neither efficient nor 
truly free.
  I ask my colleagues to vote against H.R. 3574. It is a misleading and 
irresponsible bill, and we ought to be here protecting small investors, 
and that ought to be a goal of the United States Congress.
  Mr. OXLEY. Mr. Chairman, I am pleased to yield 1\1/2\ minutes to the 
gentleman from California (Mr. Cunningham).
  Mr. CUNNINGHAM. Mr. Chairman, I thank the chairman for the time.
  I think that some speakers seem to distrust big business. Some do 
need it, but I would tell my colleagues, California was hit extensively 
with defense cuts. A lot of the jobs were lost, a lot of not just DOD 
but jobs in the high-tech industries, defense and so on.
  We have replaced a lot of our businesses with bio-tech, and quite 
often the young entrepreneurial company does not have the capital to 
start up the business. So what did they do? They reach out to 
scientists and say, Hey, we cannot pay you the amount necessary to 
study a cure for AIDS or cancer, but we can give you a piece of the 
rock.
  Some of my colleagues talked about creation of jobs. Well, we have 
gotten rid of the high-paying jobs and only have the low-service jobs.
  These quite often are high-paying jobs. It is an investment in the 
future, not only of the company but for the workers on all levels of 
that company that do have stock options. For California, our job market 
is improving, primarily of those young entrepreneurial companies. There 
are some that want to tax those, put a tax on it, but we think that 
that is wrong. When we could create an environment that produces jobs 
on all levels of the scientists, all the way from the people that take 
out the trash, and that is good, and it means that the economy can 
recover; and in the State of California it helps us, and I rise in 
strong support of this bill.
  Mr. KANJORSKI. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman 
from California (Mr. Sherman).
  Mr. SHERMAN. Mr. Chairman, I thank the gentleman for yielding me 
time.
  America has to fight to get capital. China lets its domestic 
companies put anything they want on their financial statements. We 
respond with independent, nonpolitical, generally accepted accounting 
principles written by the FASB, an independent board. Under this bill, 
we would have generally political accounting principles. Capital will 
go abroad.
  No wonder perhaps the best group defending investors, Greenspan, 
Buffett, the mutual funds represented by the Investment Company 
Institute and the major pension plans representing public employees all 
oppose this bill.
  We are told that options are broadly based. Thirty percent of the 
options goes to the top five executives; the other 70 percent are 
narrowly spread among top executives. That is why 80 percent of CEO 
compensation in this country comes in the form of stock options.
  We are told that it is difficult to do the calculations to expense 
stock options, but accountants do much more difficult calculations 
already and have for generations.
  We are told that we should adopt an absurd accounting standard, one 
where if you give an option to the number five person at a company, 
that is an expense, but the number six person at the company gets an 
option that is not an expense. Only a political body like Congress 
would decide that the weights and measures varied dependent upon 
whether you are dealing with the number five executive or the number 
six executive.
  In sum, Mr. Chairman, imposing political standards in an effort to 
conceal executive compensation will tarnish America's image for 
objective financial

[[Page H6019]]

reporting and hurt our efforts to attract capital from around the 
world.
  Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
  This has been an excellent debate, and I have great respect for the 
two gentlemen who have offered this substitute, the gentleman from 
Delaware (Mr. Castle) and the gentleman from Pennsylvania (Mr. 
Kanjorski), but the issue here is whether duly elected public 
policymakers, that is, the Congress, have a responsibility to deal with 
issues that come into the realm of the economy, job creation, economic 
growth and the like, and I think clearly the answer is ``yes.''
  How many arguments have we heard about outsourcing? How many 
arguments have we heard about the fact that we are falling behind in 
the technology gap with Asian countries? How many times have we heard 
the arguments about the number of engineers that are produced in other 
parts of the world compared to here or in science and the like? How 
many times have we heard about the competition out there for good 
quality people who have an idea, who want to bring that idea to 
fruition?
  That is really what employee stock options do. It gives them an 
incentive. It incentivizes these folks to work harder and to come up 
with more innovations because they have a piece of the action. They own 
part of that company, and this is clearly what it is.
  The fastest growing area for employee stock options is Asia, and 
among the Asian countries, the fastest growing country for creation of 
employee stock options is Communist China.

                              {time}  1400

  When our American companies have to compete for talent with Japan and 
China and other countries in Asia, and at the same time we have 
politicians and pundits complaining about outsourcing and about our 
inability to be competitive, do we have to stand back as elected 
Members of Congress and say we are willing to allow those decisions to 
be made by unelected bureaucrats and the private sector? I say, no.
  So this idea that the gentleman from Louisiana (Mr. Baker) came up 
with, which deals with that 30 percent, the top five people in a 
corporation, this deals directly with that. It says we are going to 
have them report those stock options. That is precisely the point 
behind this.
  If the argument is that somehow all of the business scandals resulted 
from the fact that people were abusing stock options, then this bill is 
the answer to that problem. I ask Members to oppose the substitute and 
for a strong bipartisan vote for final passage.
  The CHAIRMAN pro tempore (Mr. LaHood). The question is on the 
amendment offered by the gentleman from Pennsylvania (Mr. Kanjorski).
  The question was taken; and the Chairman pro tempore announced that 
the noes appeared to have it.
  Mr. KANJORSKI. Mr. Chairman, I demand a recorded vote.
  The CHAIRMAN pro tempore. Pursuant to clause 6 of rule XVIII, further 
proceedings on the amendment offered by the gentleman from Pennsylvania 
(Mr. Kanjorski) will be postponed.


          Sequential Votes Postponed in Committee of the Whole

  The CHAIRMAN pro tempore. Pursuant to clause 6 of rule XVIII, 
proceedings will now resume on those amendments on which further 
proceedings were postponed, in the following order: amendment No. 2 
offered by the gentleman from California (Mr. Sherman); amendment No. 3 
offered by the gentlewoman from New York (Mrs. Maloney); and amendment 
No. 4 offered by the gentleman from Pennsylvania (Mr. Kanjorski).
  The Chair will reduce to 5 minutes the time for any electronic vote 
after the first vote in this series.


                 Amendment No. 2 Offered by Mr. Sherman

  The CHAIRMAN pro tempore. The pending business is the demand for a 
recorded vote on the amendment offered by the gentleman from California 
(Mr. Sherman) on which further proceedings were postponed and on which 
the noes prevailed by voice vote.
  The Clerk will redesignate the amendment.
  The Clerk redesignated the amendment.


                             Recorded Vote

  The CHAIRMAN pro tempore. A recorded vote has been demanded.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 126, 
noes 296, not voting 11, as follows:

                             [Roll No. 394]

                               AYES--126

     Abercrombie
     Ackerman
     Alexander
     Andrews
     Baldwin
     Bass
     Becerra
     Bell
     Bereuter
     Berman
     Berry
     Bishop (NY)
     Bono
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Cardin
     Castle
     Clay
     Clyburn
     Conyers
     Costello
     Davis (CA)
     Davis (FL)
     Davis (IL)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dingell
     Doggett
     Doyle
     Duncan
     Ehlers
     Emanuel
     Evans
     Fattah
     Filner
     Fossella
     Frank (MA)
     Gilchrest
     Gillmor
     Grijalva
     Gutierrez
     Hastings (FL)
     Hinchey
     Holt
     Hoyer
     Jackson (IL)
     Jackson-Lee (TX)
     Jones (OH)
     Kanjorski
     Kaptur
     Kleczka
     Kucinich
     Leach
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lowey
     Maloney
     Markey
     Marshall
     Matsui
     McCollum
     McDermott
     McNulty
     Meek (FL)
     Michaud
     Millender-McDonald
     Miller, George
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Peterson (MN)
     Petri
     Platts
     Pomeroy
     Rahall
     Rangel
     Rodriguez
     Rohrabacher
     Rothman
     Roybal-Allard
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanders
     Schakowsky
     Serrano
     Shays
     Sherman
     Skelton
     Slaughter
     Smith (MI)
     Solis
     Spratt
     Stark
     Stearns
     Strickland
     Stupak
     Taylor (MS)
     Thompson (MS)
     Tierney
     Udall (CO)
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Weldon (PA)
     Wexler

                               NOES--296

     Aderholt
     Akin
     Allen
     Baca
     Bachus
     Baird
     Baker
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Beauprez
     Berkley
     Biggert
     Bilirakis
     Bishop (GA)
     Bishop (UT)
     Blackburn
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Boozman
     Boswell
     Boucher
     Boyd
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Capuano
     Cardoza
     Carson (OK)
     Carter
     Case
     Chabot
     Chandler
     Chocola
     Coble
     Cole
     Cox
     Cramer
     Crane
     Crenshaw
     Crowley
     Cubin
     Culberson
     Cummings
     Cunningham
     Davis (AL)
     Davis (TN)
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Dicks
     Dooley (CA)
     Doolittle
     Dreier
     Dunn
     Edwards
     Emerson
     English
     Eshoo
     Etheridge
     Everett
     Farr
     Feeney
     Flake
     Foley
     Forbes
     Ford
     Franks (AZ)
     Frelinghuysen
     Frost
     Gallegly
     Garrett (NJ)
     Gephardt
     Gerlach
     Gibbons
     Gingrey
     Gonzalez
     Goode
     Goodlatte
     Gordon
     Goss
     Granger
     Graves
     Green (TX)
     Green (WI)
     Greenwood
     Gutknecht
     Hall
     Harman
     Harris
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Herseth
     Hill
     Hinojosa
     Hobson
     Hoekstra
     Holden
     Honda
     Hooley (OR)
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Inslee
     Israel
     Issa
     Istook
     Jefferson
     Jenkins
     John
     Johnson (CT)
     Johnson (IL)
     Johnson, E. B.
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Latham
     LaTourette
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lofgren
     Lucas (KY)
     Lucas (OK)
     Lynch
     Manzullo
     Matheson
     McCarthy (MO)
     McCarthy (NY)
     McCotter
     McGovern
     McHugh
     McInnis
     McIntyre
     McKeon
     Meehan
     Meeks (NY)
     Menendez
     Mica
     Miller (FL)
     Miller (MI)
     Miller (NC)
     Miller, Gary
     Mollohan
     Moore
     Moran (KS)
     Moran (VA)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Ortiz
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pearce
     Pelosi
     Pence
     Peterson (PA)
     Pickering
     Pitts
     Pombo
     Porter
     Portman
     Price (NC)
     Pryce (OH)
     Putnam
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reyes
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Ros-Lehtinen
     Ross
     Royce
     Ruppersberger
     Ryan (WI)
     Ryun (KS)
     Sanchez, Loretta
     Sandlin
     Saxton
     Schiff
     Schrock
     Scott (GA)
     Scott (VA)
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Smith (NJ)
     Smith (TX)
     Smith (WA)
     Snyder
     Souder
     Stenholm
     Sullivan
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thompson (CA)
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Towns
     Turner (OH)
     Turner (TX)
     Udall (NM)
     Upton
     Van Hollen
     Velazquez
     Vitter

[[Page H6020]]


     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Woolsey
     Wu
     Wynn
     Young (AK)
     Young (FL)

                             NOT VOTING--11

     Ballenger
     Carson (IN)
     Collins
     Cooper
     Engel
     Ferguson
     Hoeffel
     Isakson
     Majette
     McCrery
     Quinn

                              {time}  1426

  Mrs. WILSON of New Mexico, Ms. KILPATRICK, and Messrs. GUTKNECHT, 
WYNN, BRADLEY of New Hampshire, LANTOS and BISHOP of Georgia changed 
their vote from ``aye'' to ``no.''
  Ms. CORRINE BROWN of Florida, Mr. DEUTSCH and Mr. DINGELL changed 
their vote from ``no'' to ``aye.''
  So the amendment was rejected.
  The result of the vote was announced as above recorded.


                Amendment No. 3 Offered by Mrs. Maloney

  The CHAIRMAN pro tempore (Mr. LaHood). The pending business is the 
demand for a recorded vote on the amendment offered by the gentlewoman 
from New York (Mrs. Maloney) on which further proceedings were 
postponed and on which the noes prevailed by voice vote.
  The Clerk will redesignate the amendment.
  The Clerk redesignated the amendment.


                             Recorded Vote

  The CHAIRMAN pro tempore. A recorded vote has been demanded.
  A recorded vote was ordered.
  The CHAIRMAN pro tempore. This will be a 5-minute vote.
  The vote was taken by electronic device, and there were--ayes 114, 
noes 308, not voting 11, as follows:

                             [Roll No. 395]

                               AYES--114

     Abercrombie
     Ackerman
     Alexander
     Andrews
     Baldwin
     Becerra
     Bereuter
     Berman
     Berry
     Bishop (NY)
     Bono
     Brady (PA)
     Brown (OH)
     Capps
     Cardin
     Castle
     Clay
     Clyburn
     Conyers
     Costello
     Cummings
     Davis (CA)
     Davis (FL)
     Davis (IL)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dingell
     Doyle
     Emanuel
     Engel
     Fattah
     Fossella
     Frank (MA)
     Gilchrest
     Gillmor
     Grijalva
     Gutierrez
     Hastings (FL)
     Hinchey
     Holt
     Hoyer
     Jackson (IL)
     Jackson-Lee (TX)
     Johnson (IL)
     Jones (NC)
     Kanjorski
     Kaptur
     Kleczka
     Kucinich
     Leach
     Lee
     Levin
     Lipinski
     Lowey
     Maloney
     Markey
     Marshall
     Matsui
     McCollum
     McDermott
     McNulty
     Miller (NC)
     Miller, George
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Owens
     Pascrell
     Pastor
     Payne
     Peterson (MN)
     Petri
     Pomeroy
     Rahall
     Rangel
     Rohrabacher
     Rothman
     Roybal-Allard
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanders
     Schakowsky
     Serrano
     Shays
     Sherman
     Slaughter
     Solis
     Spratt
     Stark
     Strickland
     Stupak
     Taylor (MS)
     Thompson (MS)
     Tierney
     Towns
     Van Hollen
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Wu
     Wynn

                               NOES--308

     Aderholt
     Akin
     Allen
     Baca
     Bachus
     Baird
     Baker
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bell
     Berkley
     Biggert
     Bilirakis
     Bishop (GA)
     Bishop (UT)
     Blackburn
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Boozman
     Boswell
     Boucher
     Boyd
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown, Corrine
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Capuano
     Cardoza
     Carson (OK)
     Carter
     Case
     Chabot
     Chandler
     Chocola
     Coble
     Cole
     Cox
     Cramer
     Crane
     Crenshaw
     Crowley
     Cubin
     Culberson
     Cunningham
     Davis (AL)
     Davis (TN)
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Dicks
     Doggett
     Dooley (CA)
     Doolittle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Emerson
     English
     Eshoo
     Etheridge
     Evans
     Everett
     Farr
     Feeney
     Filner
     Flake
     Foley
     Forbes
     Ford
     Franks (AZ)
     Frelinghuysen
     Frost
     Gallegly
     Garrett (NJ)
     Gephardt
     Gerlach
     Gibbons
     Gingrey
     Gonzalez
     Goode
     Goodlatte
     Gordon
     Goss
     Granger
     Graves
     Green (TX)
     Green (WI)
     Greenwood
     Gutknecht
     Hall
     Harman
     Harris
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Herseth
     Hill
     Hinojosa
     Hobson
     Hoekstra
     Holden
     Honda
     Hooley (OR)
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Inslee
     Israel
     Issa
     Istook
     Jefferson
     Jenkins
     John
     Johnson (CT)
     Johnson, E. B.
     Johnson, Sam
     Jones (OH)
     Keller
     Kelly
     Kennedy (MN)
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Latham
     LaTourette
     Lewis (CA)
     Lewis (GA)
     Lewis (KY)
     Linder
     LoBiondo
     Lofgren
     Lucas (KY)
     Lucas (OK)
     Lynch
     Manzullo
     Matheson
     McCarthy (MO)
     McCarthy (NY)
     McCotter
     McGovern
     McHugh
     McInnis
     McIntyre
     McKeon
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Mica
     Michaud
     Millender-McDonald
     Miller (FL)
     Miller (MI)
     Miller, Gary
     Mollohan
     Moore
     Moran (KS)
     Moran (VA)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Ortiz
     Osborne
     Ose
     Otter
     Oxley
     Pallone
     Paul
     Pearce
     Pelosi
     Pence
     Peterson (PA)
     Pickering
     Pitts
     Platts
     Pombo
     Porter
     Portman
     Price (NC)
     Pryce (OH)
     Putnam
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reyes
     Reynolds
     Rodriguez
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Ros-Lehtinen
     Ross
     Royce
     Ruppersberger
     Ryan (WI)
     Ryun (KS)
     Sanchez, Loretta
     Sandlin
     Saxton
     Schiff
     Schrock
     Scott (GA)
     Scott (VA)
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Skelton
     Smith (NJ)
     Smith (TX)
     Smith (WA)
     Snyder
     Souder
     Stearns
     Stenholm
     Sullivan
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thompson (CA)
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Upton
     Velazquez
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Woolsey
     Young (AK)
     Young (FL)

                             NOT VOTING--11

     Ballenger
     Carson (IN)
     Collins
     Cooper
     Ferguson
     Hoeffel
     Isakson
     Majette
     McCrery
     Quinn
     Smith (MI)


                Announcement by the Chairman Pro Tempore

  The CHAIRMAN pro tempore (during the vote). Members are advised that 
2 minutes remain in this vote.

                              {time}  1435

  Mr. WYNN and Mr. FOSSELLA changed their vote from ``no'' to ``aye.''
  So the amendment was rejected.
  The result of the vote was announced as above recorded.


                Amendment No. 4 Offered by Mr. Kanjorski

  The CHAIRMAN pro tempore (Mr. LaHood). The pending business is the 
demand for a recorded vote on the amendment offered by the gentleman 
from Pennsylvania (Mr. Kanjorski) on which further proceedings were 
postponed and on which the noes prevailed by voice vote.
  The Clerk will redesignate the amendment.
  The Clerk redesignated the amendment.


                             Recorded Vote

  The CHAIRMAN pro tempore. A recorded vote has been demanded.
  A recorded vote was ordered.
  The CHAIRMAN pro tempore. This will be a 5-minute vote.
  The vote was taken by electronic device, and there were--ayes 127, 
noes 293, not voting 13, as follows:

                             [Roll No. 396]

                               AYES--127

     Abercrombie
     Ackerman
     Alexander
     Andrews
     Baldwin
     Bass
     Becerra
     Bell
     Bereuter
     Berman
     Berry
     Bilirakis
     Bishop (NY)
     Bono
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Cardin
     Castle
     Clay
     Clyburn
     Conyers
     Costello
     Cummings
     Davis (CA)
     Davis (FL)
     Davis (IL)
     DeFazio
     Delahunt
     DeLauro
     Deutsch
     Dingell
     Doyle
     Emanuel
     Engel
     Evans
     Fattah
     Ford
     Fossella
     Frank (MA)
     Gilchrest
     Gillmor
     Goode
     Grijalva
     Gutierrez
     Hall
     Hastings (FL)
     Hinchey
     Hoeffel
     Hoyer
     Jackson (IL)
     Jackson-Lee (TX)
     Johnson (IL)
     Jones (OH)
     Kanjorski
     Kaptur
     Kildee
     Kleczka
     Kolbe
     Kucinich
     Leach
     Lee
     Levin
     Lipinski
     Lowey
     Maloney
     Markey
     Marshall
     Matsui
     McCollum
     McDermott
     McInnis
     McNulty
     Miller, George
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Osborne
     Owens
     Pascrell
     Pastor
     Payne
     Peterson (MN)
     Petri
     Platts
     Pomeroy
     Rahall
     Rangel
     Rohrabacher
     Rothman
     Roybal-Allard
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanders
     Schakowsky
     Scott (VA)
     Serrano
     Shays
     Sherman

[[Page H6021]]


     Shimkus
     Simmons
     Slaughter
     Smith (MI)
     Solis
     Spratt
     Stark
     Stearns
     Strickland
     Stupak
     Taylor (MS)
     Thompson (MS)
     Tierney
     Towns
     Van Hollen
     Visclosky
     Waters
     Watt
     Waxman
     Weiner
     Wexler

                               NOES--293

     Aderholt
     Akin
     Allen
     Baca
     Bachus
     Baird
     Baker
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Beauprez
     Biggert
     Bishop (GA)
     Bishop (UT)
     Blackburn
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Boozman
     Boswell
     Boucher
     Boyd
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Capuano
     Cardoza
     Carson (OK)
     Carter
     Case
     Chabot
     Chandler
     Chocola
     Coble
     Cole
     Cox
     Cramer
     Crane
     Crenshaw
     Crowley
     Cubin
     Culberson
     Cunningham
     Davis (AL)
     Davis (TN)
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeGette
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Dicks
     Doggett
     Dooley (CA)
     Doolittle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Emerson
     English
     Eshoo
     Etheridge
     Everett
     Farr
     Feeney
     Filner
     Flake
     Foley
     Forbes
     Franks (AZ)
     Frelinghuysen
     Frost
     Gallegly
     Garrett (NJ)
     Gephardt
     Gerlach
     Gibbons
     Gingrey
     Gonzalez
     Goodlatte
     Gordon
     Goss
     Granger
     Graves
     Green (TX)
     Green (WI)
     Gutknecht
     Harman
     Harris
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Herseth
     Hill
     Hinojosa
     Hobson
     Hoekstra
     Holden
     Holt
     Honda
     Hooley (OR)
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Inslee
     Israel
     Issa
     Istook
     Jefferson
     Jenkins
     John
     Johnson, E. B.
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     Kennedy (RI)
     Kilpatrick
     Kind
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     LaHood
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Latham
     LaTourette
     Lewis (CA)
     Lewis (GA)
     Lewis (KY)
     Linder
     LoBiondo
     Lofgren
     Lucas (KY)
     Lucas (OK)
     Lynch
     Manzullo
     Matheson
     McCarthy (MO)
     McCarthy (NY)
     McCotter
     McGovern
     McHugh
     McIntyre
     McKeon
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Mica
     Michaud
     Millender-McDonald
     Miller (FL)
     Miller (MI)
     Miller (NC)
     Miller, Gary
     Mollohan
     Moore
     Moran (KS)
     Moran (VA)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Ortiz
     Ose
     Otter
     Oxley
     Pallone
     Paul
     Pearce
     Pelosi
     Pence
     Peterson (PA)
     Pickering
     Pitts
     Pombo
     Porter
     Portman
     Price (NC)
     Pryce (OH)
     Putnam
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reyes
     Reynolds
     Rodriguez
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Ros-Lehtinen
     Ross
     Royce
     Ruppersberger
     Ryan (WI)
     Ryun (KS)
     Sanchez, Loretta
     Sandlin
     Saxton
     Schiff
     Schrock
     Scott (GA)
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Sherwood
     Shuster
     Simpson
     Skelton
     Smith (NJ)
     Smith (TX)
     Smith (WA)
     Snyder
     Souder
     Stenholm
     Sullivan
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (NC)
     Terry
     Thompson (CA)
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Upton
     Velazquez
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Watson
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Woolsey
     Wu
     Wynn
     Young (AK)
     Young (FL)

                             NOT VOTING--13

     Ballenger
     Berkley
     Carson (IN)
     Collins
     Cooper
     Ferguson
     Greenwood
     Isakson
     Johnson (CT)
     Majette
     McCrery
     Quinn
     Thomas


                Announcement by the Chairman Pro Tempore

  The CHAIRMAN pro tempore (during the vote). Members are advised there 
are 2 minutes remaining in this vote.

                              {time}  1442

  Mr. CONYERS changed his vote from ``no'' to ``aye.''
  So the amendment was rejected.
  The result of the vote was announced as above recorded.


                          personal explanation

  Mr. McINNIS. Mr. Chairman, during today's consideration of H.R. 3574, 
a bill introduced by Representative Baker, I mistakenly voted ``no'' on 
one of the amendments to this legislation. Representative Kanjorski 
introduced a substitute amendment to H.R. 3574, (rollcall No. 396). I 
voted in favor of Representative Kanjorski's amendment. Please let the 
Record reflect that I intended to vote against that amendment.
  The CHAIRMAN pro tempore. There being no other amendments, the 
question is on the committee amendment in the nature of a substitute, 
as amended.
  The committee amendment in the nature of a substitute, as amended, 
was agreed to.
  The CHAIRMAN pro tempore. Under the rule, the Committee rises.
  Accordingly, the Committee rose; and the Speaker pro tempore (Mr. 
Sweeney) having assumed the chair, Mr. LaHood, Chairman pro tempore of 
the Committee of the Whole House on the State of the Union, reported 
that that Committee, having had under consideration the bill (H.R. 
3574) to require the mandatory expensing of stock options granted to 
executive officers, and for other purposes, pursuant to House 
Resolution 725, he reported the bill back to the House with an 
amendment adopted by the Committee of the Whole.
  The SPEAKER pro tempore. Under the rule, the previous question is 
ordered.
  Is a separate vote demanded on the amendment to the committee 
amendment in the nature of a substitute adopted by the Committee of the 
Whole? If not, the question is on the committee amendment in the nature 
of a substitute.
  The committee amendment in the nature of a substitute was agreed to.
  The SPEAKER pro tempore. The question is on the engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed and read a third time, and was 
read the third time.
  The SPEAKER pro tempore. The question is on the passage of the bill.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.
  Mr. OXLEY. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The vote was taken by electronic device, and there were--yeas 312, 
nays 111, not voting 10, as follows:

                             [Roll No. 397]

                               YEAS--312

     Ackerman
     Aderholt
     Akin
     Allen
     Andrews
     Baca
     Bachus
     Baird
     Baker
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Beauprez
     Becerra
     Bell
     Berkley
     Biggert
     Bilirakis
     Bishop (GA)
     Bishop (UT)
     Blackburn
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Boozman
     Boswell
     Boucher
     Boyd
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown, Corrine
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Capuano
     Cardoza
     Carson (OK)
     Carter
     Case
     Chabot
     Chandler
     Chocola
     Clay
     Coble
     Cox
     Cramer
     Crane
     Crenshaw
     Crowley
     Cubin
     Culberson
     Cunningham
     Davis (AL)
     Davis (CA)
     Davis (IL)
     Davis (TN)
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     Delahunt
     DeLay
     DeMint
     Deutsch
     Diaz-Balart, L.
     Diaz-Balart, M.
     Dicks
     Doggett
     Dooley (CA)
     Doolittle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Engel
     English
     Eshoo
     Etheridge
     Everett
     Farr
     Feeney
     Filner
     Flake
     Foley
     Forbes
     Ford
     Franks (AZ)
     Frelinghuysen
     Frost
     Gallegly
     Garrett (NJ)
     Gephardt
     Gerlach
     Gibbons
     Gonzalez
     Goodlatte
     Gordon
     Goss
     Granger
     Graves
     Green (TX)
     Green (WI)
     Greenwood
     Gutknecht
     Hall
     Harman
     Harris
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Herseth
     Hill
     Hinojosa
     Hobson
     Hoekstra
     Holden
     Holt
     Honda
     Hooley (OR)
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Inslee
     Israel
     Issa
     Istook
     Jefferson
     Jenkins
     John
     Johnson (CT)
     Johnson (IL)
     Johnson, E. B.
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     Kennedy (RI)
     Kind
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Latham
     LaTourette
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lofgren
     Lucas (KY)
     Lucas (OK)
     Lynch
     Manzullo
     Matheson
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McCotter
     McGovern
     McHugh
     McInnis
     McIntyre
     McKeon
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Mica
     Michaud
     Millender-McDonald
     Miller (FL)
     Miller (MI)
     Miller (NC)
     Miller, Gary
     Miller, George
     Mollohan
     Moore
     Moran (KS)
     Moran (VA)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Ortiz
     Ose
     Otter
     Owens
     Oxley
     Pallone
     Paul
     Pearce
     Pelosi
     Pence
     Peterson (PA)
     Pickering
     Pitts
     Pombo
     Porter
     Portman
     Price (NC)
     Pryce (OH)
     Putnam
     Radanovich
     Ramstad
     Rangel
     Regula
     Rehberg
     Renzi
     Reyes
     Reynolds
     Rodriguez
     Rogers (AL)

[[Page H6022]]


     Rogers (KY)
     Rogers (MI)
     Ros-Lehtinen
     Ross
     Royce
     Ruppersberger
     Ryan (WI)
     Ryun (KS)
     Sanchez, Loretta
     Sandlin
     Saxton
     Schiff
     Schrock
     Scott (GA)
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Sherwood
     Shuster
     Simmons
     Simpson
     Skelton
     Smith (NJ)
     Smith (TX)
     Smith (WA)
     Snyder
     Solis
     Souder
     Stenholm
     Sullivan
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (NC)
     Thomas
     Thompson (CA)
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Upton
     Velazquez
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Watson
     Weldon (FL)
     Weldon (PA)
     Weller
     Wexler
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Woolsey
     Wu
     Wynn
     Young (AK)
     Young (FL)

                               NAYS--111

     Abercrombie
     Alexander
     Baldwin
     Bass
     Bereuter
     Berman
     Berry
     Bishop (NY)
     Bono
     Brady (PA)
     Brown (OH)
     Capps
     Cardin
     Castle
     Clyburn
     Cole
     Conyers
     Costello
     Cummings
     Davis (FL)
     DeFazio
     DeGette
     DeLauro
     Dingell
     Doyle
     Emanuel
     Emerson
     Evans
     Fattah
     Fossella
     Frank (MA)
     Gilchrest
     Gillmor
     Goode
     Grijalva
     Gutierrez
     Hastings (FL)
     Hinchey
     Hoeffel
     Hoyer
     Jackson (IL)
     Jackson-Lee (TX)
     Jones (OH)
     Kanjorski
     Kaptur
     Kildee
     Kilpatrick
     Kleczka
     Kolbe
     Kucinich
     LaHood
     Leach
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lowey
     Maloney
     Markey
     Marshall
     Matsui
     McDermott
     McNulty
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Osborne
     Pascrell
     Pastor
     Payne
     Peterson (MN)
     Petri
     Platts
     Pomeroy
     Rahall
     Rohrabacher
     Rothman
     Roybal-Allard
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanders
     Schakowsky
     Scott (VA)
     Serrano
     Shays
     Sherman
     Shimkus
     Slaughter
     Smith (MI)
     Spratt
     Stark
     Stearns
     Strickland
     Stupak
     Taylor (MS)
     Terry
     Thompson (MS)
     Tierney
     Towns
     Van Hollen
     Visclosky
     Waters
     Watt
     Waxman
     Weiner

                             NOT VOTING--10

     Ballenger
     Carson (IN)
     Collins
     Cooper
     Ferguson
     Gingrey
     Isakson
     Majette
     McCrery
     Quinn


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Sweeney) (during the vote). Members are 
advised 2 minutes remain in this vote.

                              {time}  1500

  Mr. PAYNE changed his vote from ``yea'' to ``nay.''
  So the bill was passed.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.
  Stated for:
  Mr. GINGREY. Mr. Speaker, on rollcall No. 397 I was unavoidably 
detained. Had I been present, I would have voted ``yea.''

                          ____________________