[Congressional Record (Bound Edition), Volume 146 (2000), Part 4]
[Senate]
[Pages 5344-5356]
[From the U.S. Government Publishing Office, www.gpo.gov]



                    WORKER ECONOMIC OPPORTUNITY ACT

  The PRESIDING OFFICER. The clerk will report S. 2323 by title.
  The bill clerk read as follows:

       A bill (S. 2323) to amend the Fair Labor Standards Act of 
     1938 to clarify the treatment of stock options under the Act.

  The Senate proceeded to consider the bill.
  Mr. BAUCUS. Mr. President, I suggest the absence of a quorum, and I 
ask unanimous consent that the quorum call not be charged against 
either side.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. McCONNELL. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The distinguished Senator from Kentucky, Mr. McConnell, is 
recognized.
  Mr. McCONNELL. Mr. President, I want to speak on behalf of the 
pending measure, the Worker Economic Opportunity Act, which the Senate 
will pass shortly.
  This bipartisan bill will ensure that American workers can receive 
lucrative stock options from their employers--once considered the 
exclusive perk of corporate executives.
  Senator Dodd and I have worked closely with Senators Jeffords and 
Enzi, Abraham, Bennett, and Lieberman, the Department of Labor, and 
others to develop this critical bill.
  We have the support of groups representing business and workers, as 
well as Secretary Alexis Herman. In short, everybody wins with this 
proposal.
  All over the country today, forward-thinking employers are offering 
new financial opportunities--such as stock options--to hourly 
employees.
  Unfortunately, it appears that our 1930's vintage labor laws might 
not allow the normal workers of the 21st century to reap these 
benefits.
  When we realized this, we decided to fix this problem. It would be a 
travesty for us to let old laws steal this chance for the average 
employee to share in his or her company's economic growth.
  The Workers Economic Opportunity Act is really very simple. It says 
that it makes no difference if you work in the corporate boardroom or 
on the factory floor--everyone should be able to share in the success 
of the company.
  In sum, the bill would amend the Fair Labor Standards Act to ensure 
that employer-provided stock option programs are allowed, just like 
employee bonuses already are.
  Also, this legislation includes a broad ``safe harbor'' that 
specifies that employers have no liability because of any stock options 
or similar programs that they have given to employees in the past.
  I hope that this bill will be the first of many commonsense efforts 
to drag old labor and employment laws into the new millennium.
  Mr. President, we need to pass this law. The Federal Reserve Board of 
Governors recently estimated that 17 percent of firms have introduced 
stock option programs.
  They went on to say that over the last two years, 37 percent of these 
employers have broadened eligibility for their stock option programs--
allowing even more American workers to share in their employers' 
prosperity.
  The Employment Policy Foundation estimates between 9.4 million and 
25.8 million workers receive benefits through some type of equity 
participation program.
  This trend is growing, and given the current state of the economy, it 
is likely to continue to grow.
  However, we have one last thing we have to do to make sure that 
American workers can have this incredible opportunity--we have to pass 
this bill.
  Without it, our ``New Deal'' labor laws will strangle the benefits 
our ``New Economy'' offers to American workers.
  Mr. President, I ask unanimous consent that a letter of support from 
the United States Chamber of Commerce be printed in the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                        Chamber of Commerce of the


                                     United States of America,

                                    Washington, DC, April 7, 2000.
     Hon. Mitch McConnell,
     U.S. Senate,
     Washington, DC.
       Dear Senator McConnell: I am writing to express the support 
     of the United States Chamber of Commerce, the world's largest 
     business federation representing more than three million 
     businesses and organizations of every size, sector and 
     region, for S. 2323, the Worker Economic Opportunity Act.
       Last year the U.S. Department of Labor issued an advisory 
     letter stating that companies providing stock options to 
     their employees must include the value of those options in 
     the base rate of pay for hourly workers. Employers must then 
     recalculate overtime pay over the period of time between the 
     granting and exercise of the options. This costly and 
     administratively complex process will cause many employers to 
     refrain from offering stock options and similar employee 
     equity programs to their nonexempt workers.
       Clearly, the Fair Labor Standards Act needs to be 
     modernized to reflect the fact

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     that many of today's hourly workers receive stock options. 
     For this reason, the Chamber strongly supports S. 2323, which 
     would exempt stock options, stock appreciation rights, and 
     employee stock purchase plan programs from the regular rate 
     of pay for nonexempt workers. This carefully crafted 
     legislation will provide certainty to employers who want to 
     increase employee ownership and equity building by offering 
     stock options and similar programs to their hourly workers. 
     We commend you for negotiating a bill that is broadly 
     supported and look forward to working with you to ensure its 
     passage as soon as possible in this legislative session.
       Again, thank you for your leadership in introducing S. 
     2323, legislation that is important to millions of American 
     workers and employers.
           Sincerely,
                                                  R. Bruce Josten.

  Mr. McCONNELL. Mr. President, I ask unanimous consent that the 
sponsors' statement of legislative intent be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

 Joint Statement of Legislative Intent by the Sponsors of S. 2323, the 
                    Worker Economic Opportunity Act


                      I. Introduction and Purpose

       The purpose of S. 2323, the Worker Economic Opportunity 
     Act, is to allow employees who are eligible for overtime pay 
     to continue to share in workplace benefits that involve their 
     employer's stock or similar equity-based benefits. More 
     working Americans are receiving stock options or 
     opportunities to purchase stock than ever before. The Worker 
     Economic Opportunity Act updates the Fair Labor Standards Act 
     to ensure that rank-and-file employees and management can 
     share in their employer's economic well being in the same 
     manner.
       Employers have provided stock and equity-based benefits to 
     upper level management for decades. However, it is only 
     recently that employers have begun to offer these programs in 
     a broad-based manner to non-exempt employees. Historically, 
     most employees had little contact with employer-provided 
     equity devices outside of a 401(k) plan. But today, many 
     employers, from a broad cross-section of industry, have begun 
     offering their employees opportunities to purchase employer 
     stock at a modest discount, or have provided stock options to 
     rank and file employees; and they have even provided outright 
     grants of stock under certain circumstances.
       The Federal Reserve Board of Governors recently estimated 
     that 17 percent of large firms have introduced a stock 
     options program and 37 percent have broadened eligibility for 
     their stock option programs in the last two years.\1\ The 
     Employment Policy Foundation estimates between 9.4 million 
     and 25.8 million workers receive benefits through some type 
     of equity participation program.\2\ The trend is growing, and 
     given the current state of the economy, it is likely to 
     continue.
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      Footnotes at end of article.
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       The tremendous success of our economy over the last several 
     years has been largely attributed to the high technology 
     sector. One of the things that our technology companies have 
     succeeded at is creating an atmosphere in which all employees 
     share the same goal: the success of the company. By vesting 
     all employees in the success of the business, stock options 
     and other equity devices have become an important tool to 
     create businesses with unparalleled productivity. The Worker 
     Economic Opportunity Act will encourage more employers to 
     provide opportunities for equity participation to their 
     employees, further expanding the benefits that inure from 
     equity participation.


                II. Background and Need for Legislation

     A. Background on stock options and related devices
       Employers use a variety of equity devices to share the 
     benefits of equity ownership with their employees. As the 
     employer's stock appreciates, these devices provide a tool to 
     attract and retain employees, an increasingly difficult task 
     during a time of record economic growth and low unemployment 
     in the United States. These programs also foster a broader 
     sense of commitment to a common goal--the maintenance and 
     improvement of the company's performance--among all employees 
     nationally and even internationally, and thus provide an 
     alignment between the interests of employees with the 
     interests of the company and its shareholders. They can also 
     reinforce the evolving employer-employee relationship, with 
     employees viewed as stakeholders.
       Employer stock option and stock programs come in all 
     different types and formats. The Worker Economic Opportunity 
     Act focuses on the most common types: stock option, stock 
     appreciation right, and employee stock purchase programs.
       Stock Option Programs.--Stock options provide the right to 
     purchase the employer's securities for a fixed period of 
     time. Stock option programs vary greatly by employer. 
     However, two main types exist: nonqualified and qualified 
     option programs.\3\ Most programs are nonqualified stock 
     option programs, meaning that the structure of the program 
     does not protect the employee from being taxed at the time of 
     exercise. However, the mechanics of stock option programs are 
     very similar regardless of whether they are nonqualified or 
     qualified. Some of these characteristics are described below.
       Grants. An employer grants to employees a certain number of 
     options to purchase shares of the employer's stock. The 
     exercise price may be around the fair market value of the 
     stock at the time of the grant, or it may be discounted below 
     fair market value to provide the employee an incentive to 
     participate in the option program.
       Vesting. Most stock option programs have some sort of 
     requirement to wait some period after the grant to benefit 
     from the options, often called a vesting period. After the 
     period, employees typically may exercise their options by 
     exchanging the options for stock at the exercise price at any 
     time before the option expires, which is typically up to ten 
     years. In some cases, options may vest on a schedule, for 
     example, with a third of the options vesting each year over a 
     three-year period. In addition to vesting on a date certain, 
     some options may vest if the company hits a certain goal, 
     such as reaching a certain stock price for a certain number 
     of days. Some programs also provide for accelerated or 
     automatic vesting in certain circumstances such as when an 
     employee retires or dies before the vesting period has run, 
     where there is change in corporate control or when an 
     employee's employment is terminated.
       Exercise. Under both qualified and nonqualified stock 
     option programs, an employee can exchange the options, along 
     with sufficient cash to pay the exercise price of the 
     options, for shares of stock. Because many rank-and-file 
     employees cannot afford to pay the cost of buying the stock 
     at the option price in cash, many employers have given their 
     employees the opportunity for ``cashless'' exercise, either 
     for cash or for stock, under nonqualified option plans. In a 
     cashless exercise for cash, an employee gives options to a 
     broker or program administrator, this party momentarily 
     ``lends'' the employee the money to purchase the requisite 
     number of shares at the grant price, and then immediately 
     sells the shares. The employee receives the difference 
     between the market price and the exercise price of the stock 
     (the profit), less transaction fees. In a cashless exercise 
     for stock, enough shares are sold to cover the cost of buying 
     the shares the employee will retain. In either case, the 
     employee is spared from having to provide the initial cash to 
     purchase the stock at the option price.
       An employee's options usually expire at the end of the 
     option period. An employee may forfeit the right to exercise 
     the options, in whole or in part, under certain 
     circumstances, including upon separation from the employer. 
     However, some programs allow the employee to exercise the 
     options (sometimes for a limited period of time) after they 
     leave employment with the employer.
       Stock Appreciation Rights.--Stock appreciation rights 
     (SARs) operate similarly to stock options. They are the 
     rights to receive the cash value of the appreciation on an 
     underlying stock or equity based security. The stock may be 
     publicly traded, privately held, or may be based on valued, 
     but unregistered, stock or stock equivalent. The rights are 
     issued at a fixed price for a fixed period of time and can be 
     issued at a discount, carry a vesting period, and are 
     exercisable over a period of time. SARs are often used when 
     an employer cannot issue stock because the stock is listed on 
     a foreign exchange, or regulatory or financial barriers make 
     stock grants impracticable.
       Employee Stock Purchase Plans.--Employee stock purchase 
     plans (ESPPs) give employees the opportunity to purchase 
     employer stock, usually at up to a 15 percent discount, by 
     either regularly or periodically paying the employer directly 
     or by having after-tax money withdrawn as a payroll 
     deduction. Like option programs, ESPPs can be qualified or 
     nonqualified.
       Section 423 of the Internal Revenue Code \4\ sets forth the 
     factors for a qualified ESPP. The ability to participate must 
     be offered to all employees, and employees must voluntarily 
     choose whether to participate in the program. The employer 
     can offer its stock to employees at up to a 15 percent 
     discount off of the fair market value of the stock, 
     determined at the time the option to purchase stock is 
     granted or at the time the stock is actually purchased. The 
     employee is required to hold the stock for one or two years 
     after the option is granted to receive capital gains 
     treatment. If the employee sells the stock before the 
     requisite period, any gain made on the sale is treated as 
     ordinary income.
       Nonqualified ESPPs are usually similar to qualified ESPPs, 
     but they lack one or more qualifying features. For example, 
     the plan may apply only to one segment of employees, or may 
     provide for a greater discount.
     B. The Fair Labor Standards Act and stock options
       The Fair Labor Standards Act of 1938 \5\ (FLSA) establishes 
     workplace protections including a minimum hourly wage and 
     overtime compensation for covered employees,

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     record keeping requirements and protections against child 
     labor, among other provisions. A cornerstone of the FLSA is 
     the requirement that an employer pay its nonexempt employees 
     overtime for all hours worked over 40 in a week at one and 
     one-half times the employee's regular rate of pay.\6\ The 
     term ``regular rate'' is broadly defined in the statute to 
     mean ``all remuneration for employment paid to, or on behalf 
     of, the employee.'' \7\
       Section 207(e) of the statute excludes certain payments 
     from an employee's regular rate of pay to encourage employers 
     to provide them, without undermining employees' fundamental 
     right to overtime pay. Excluded payments include holiday 
     bonuses or gifts,\8\ discretionary bonuses,\9\ bona fide 
     profit sharing plans,\10\ bona fide thrift or savings 
     plans,\11\ and bona fide old-age, retirement, life, accident 
     or health or similar benefits plans.\12\ By excluding these 
     payments from the definition of ``regular rate,'' \13\ 
     Congress recognized that certain kinds of benefits provided 
     to employees are not within the generally accepted meaning of 
     compensation for work performed.
       Thus, by excluding these payments from the regular rate in 
     section 207(e) of the FLSA, Congress encouraged employers to 
     provide these payments and benefits to employees. The 
     encouragement has worked well--employees now expect to 
     receive from their employer at least some of these benefits 
     (i.e., healthcare), which today, on average, comprise almost 
     30 percent of employees' gross compensation./14/ For similar 
     reasons, Congress decided that the value and income from 
     stock option, SAR and ESPP programs should also be excluded 
     from the regular rate, because they allow employees to share 
     in the future success of their companies.
     C. The Department of Labor's opinion letter on stock options
       The impetus behind the Worker Economic Opportunity Act is 
     the broad dissemination of a February 1999 advisory opinion 
     letter \15\ regarding stock options issued by the Department 
     of Labor's Wage and Hour Division, the agency charged with 
     the administration of the FLSA. The letter involved an 
     employer's stock option program wherein its employees would 
     be notified of the program three months before the options 
     were granted, and some rank-and-file employees employed by 
     the company on the grant date would receive options. The 
     options would have a two-year vesting period, with 
     accelerated vesting if certain events occurred. The employer 
     would also automatically exercise any unexercised options on 
     behalf of the employees the day before the program ended.\16\

       The opinion letter indicated that the stock option program 
     did not meet any of the existing exemptions to the regular 
     rate under the FLSA, although it did not explain the reasons 
     in any detail. Later, the Administration's testimony before 
     the House Workforce Protections Subcommittee explained that 
     the stock option program did not meet the gift, discretionary 
     bonus, or profit sharing exceptions to the regular rate 
     because, among other reasons, it required employees to do 
     something as a condition of receiving the options--to remain 
     employed with the company for a period of time.\17\ Such a 
     condition is not allowed under the current regular rate 
     exclusions. The testimony also noted that the program was not 
     excludable under the thrift or savings plan exception because 
     the employees were only allowed to exercise their options 
     using a cashless method of exercise, and thus the employees 
     could not keep the stock as savings or an investment.\18\

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


            III. Explanation of the Bill and Sponsors' Views

       Congress worked closely with the Department of Labor to 
     develop this important legislation. The sections below 
     reflect the discussions between the sponsors and the 
     Department of Labor during the development of the 
     legislation, and the sponsors' intent and their understanding 
     of the legislation.
     A. Definition of bona fide ESPP
       For the purposes of the Worker Economic Opportunity Act, a 
     bona fide employee stock purchase plan includes an ESPP that 
     is (1) a qualified ESPP under section 423 of the Internal 
     Revenue Code;23 or (2) a plan that meets the 
     criteria identified below.
       1. Qualified employee stock purchase plans
       Qualified ESPPs, known as section 423 plans, comprise the 
     overwhelming majority of stock purchase plans. Thus, the 
     intent of the legislation is to deem ``bona fide'' all plans 
     that meet the criteria of section 423.
       2. Nonqualified employee stock purchase plans
       As described above, section 423 plans are considered bona 
     fide ESPPs. Further, those ESPPs that do not meet the 
     criteria of section 423, but that meet the following criteria 
     also qualify as bona fide ESPPs:
       (a) the plan allows employees, on a regular or periodic 
     basis, to voluntarily provide funds, or to elect to authorize 
     periodic payroll deductions, for the purchase at a future 
     time of shares of the employer's stock;
       (b) the plan sets the purchase price of the stock as at 
     least 85% of the fair market value of the stock at the time 
     the option is granted or at the time the stock is purchased; 
     and
       (c) the plan does not permit a nonexempt employee to accrue 
     options to purchase stock at a rate which exceeds $25,000 of 
     fair market value of such stock (determined either at the 
     time the option is granted or the time the option is 
     exercised) for each calendar year.
       The sponsors note that many new types of ESPPs are being 
     developed, particularly by companies outside the United 
     States, and that many of these companies may also intend to 
     apply them to their U.S.-based employees. These purchase 
     plans have several attributes which make them appear to be 
     more like savings plans than traditional U.S. stock purchase 
     plans, such as a period of payroll deductions of between 
     three and five years, or an employer provided ``match'' in 
     the form of stock or options to the employee.
       Further many companies are developing plans that are 
     similar to section 423 plans. The sponsors believe that it is 
     in the best interests of employees for the Secretary of Labor 
     to review these and other new types of plans carefully in the 
     light of the purpose of the Worker Economic Opportunity Act--
     to encourage employers to provide opportunities for equity 
     participation to employees--and to allow section 7(e), as 
     amended, to accommodate a wide variety of programs, where it 
     does not undermine employees' fundamental right to overtime 
     pay. It is the sponsors' vision that this entire law be 
     flexible and forward-looking and that the Department of Labor 
     apply and interpret it consistently with this vision.
     B. ``Value or Income'' is defined broadly
       The hallmark of the Worker Economic Opportunity Act is that 
     section 7(e)(8) provides that any value or income derived 
     from stock option, SAR or bona fide ESPP programs is excluded 
     from the regular rate of pay. For this reason, the phrase 
     ``value or income'' is construed broadly to mean any value, 
     profit, gain, or other payment obtained, recognized or 
     realized as a result of, or in connection with, the 
     provision, award, grant, issuance, exercise or payment of 
     stock options, SARs, or stock issued or purchased pursuant to 
     a bona fide ESPP program established by the employer.
       This broad definition means, for example, that any nominal 
     value that a stock option or stock appreciation right may 
     carry before it is exercised is excluded from the regular 
     rate. Similarly, the value of the stock or the income in the 
     form of cash is excluded after

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     options are exercised, as is the income earned from the stock 
     in the form of dividends or ultimately the gains earned, if 
     any, on the sale of the stock. The discount on a stock 
     option, SAR or stock purchase under a ESPP program is 
     likewise excludable.
     C. The act preserves programs which are otherwise excludable 
         under existing regular rate exemptions
       The Worker Economic Opportunity Act recognizes two ways 
     that employer equity programs may be excluded from the 
     regular rate. Such equity programs may be excluded if they 
     meet the existing exemptions to the regular rate pursuant to 
     Section 7(e)(1)-(7), which apply to contributions and sums 
     paid by employers regardless of whether such payments are 
     made in cash or in grants of stock or other equity based 
     vehicles, and provided such payment or grant is consistent 
     with the existing regulations promulgated under Section 7(e). 
     Employer equity plans also may be excluded under new section 
     7(e)(8) added by the Worker Economic Opportunity Act.
       This is reaffirmed in new section 207(e)(8), which makes 
     clear that the enactment of section 7(e)(8) carries no 
     negative implication about the scope of the preceding 
     paragraphs of section (e). Rather, the sponsors understand 
     that some grants and rights that do not meet all the 
     requirements of section 7(e)(8) may continue to qualify for 
     exemption under an earlier exclusion. For example, programs 
     that grant options or SARs that do not have a vesting period 
     may be otherwise excludable from the regular rate if they 
     meet another section (7)(e) exclusion. This would be true 
     even if the option was granted at less than 85% of fair 
     market value. This language was not intended to prevent 
     grants or rights that meet some but not all of the 
     requirements of an earlier exemption in 7(e) from being 
     exempt under the newly created exemption.
     D. Basic communication to employees required because it helps 
         ensure a successful program
       For grants made under a stock option, SAR or bona fide ESPP 
     program to qualify for the exemption under new section 
     7(e)(8), their basic terms and conditions must be 
     communicated to participating employees either at the 
     beginning of the employee's participation in the program or 
     at the time of grant. This requirement was put into the 
     legislation to recognize that when employees understand the 
     mechanics and the implications of the equity devices they are 
     given, they can more fully participate in exercising 
     meaningful choices with respect to those devices. As 
     discussed below, this is a simple concept, it is not intended 
     to be a complicated or burdensome requirement.
       1. Terms and conditions to be communicated to employees
       Employers must communicate the material terms and 
     conditions of the stock option, stock appreciation right or 
     employee stock purchase program to employees to ensure that 
     they have sufficient information to decide whether to 
     participate in the program. With respect to options, these 
     terms include basic information on the number of options 
     granted, the number of shares granted per option, the grant 
     price, the grant date or dates, the length of any applicable 
     vesting period(s) and the dates when the employees will first 
     be able to exercise options or rights, under what conditions 
     the options must be forfeited or surrendered, the exercise 
     methods an employee may use (such as cash for stock, cashless 
     for cash or stock, etc.), any restrictions on stock purchased 
     through options, and the duration of the option, and what 
     happens to unexercised options at the end of the exercise 
     period. Pending issuance of any regulations, an employer who 
     communicated the information in the prior sentence is to be 
     deemed to have communicated the terms and conditions of the 
     grant. Similar information should be provided regarding SARs 
     or ESPPs.
       2. The mode of communications
       The legislation does not specify any particular mode of 
     communication of relevant information, and no particular 
     method of communication is required, as long as the method 
     chosen reasonably communicates the information to employees 
     in an understandable fashion. For example, employers may 
     notify their employees of an option grant by letter, and 
     later provide a formal employee handbook, or other method 
     such as a link to a location on the company Intranet. Any 
     combination of communications is acceptable. The intent of 
     the legislation is to ensure that employees are provided the 
     basic information in a timely manner, not to mandate the 
     particular form of communication.
       3. The timing of communications
       The legislation specifies that the employer is to 
     communicate the terms and conditions of the stock option, SAR 
     and ESPP programs to employees at or before the beginning of 
     the employee's participation in the program or at the time 
     the employee receives a grant. It is acceptable, and perhaps 
     even likely, that the relevant information on a program will 
     be disseminated in a combination of communications over time. 
     This approach allows flexibility and acknowledges that types 
     of participation vary greatly between stock option and SAR 
     programs, on the one hand, and ESPPs on the other.
       For example, under an ESPP, an employee may choose to begin 
     payroll deductions in January, but not actually have the 
     option to purchase stock until June. By contrast, with an 
     option or SAR program, employees are given the options or 
     rights at the outset, but those rights may not vest until 
     some year in the future.
       The timing of the communication is flexible, because often 
     it is difficult to have materials ready for employees at the 
     beginning of a stock option or stock appreciation right 
     program, immediately following approval by the Board of 
     Directors, because of confidentiality requirements. Thus, 
     within a reasonable time following approval of a stock option 
     grant by the Board of Directors, the employer is required to 
     communicate basic information about the grant employees have 
     received. For example, an initial letter may notify the 
     employees that they have received a certain number of stock 
     options and provide the basic information about the program. 
     More detailed information about the program may precede or 
     follow the grant in formats such as an employee handbook, 
     options pamphlet, or an Intranet site that provides options 
     information.
     E. Exercisability criteria applicable only to stock options 
         and SARs
       As discussed above, a common feature in grants of stock 
     options and SARs is a vesting or holding period, which under 
     current practice may be as short as a few months or as long 
     as a number of years. For a stock option or SAR to be 
     excluded from the regular rate pursuant to the Worker 
     Economic Opportunity Act, new section 7(e)(8) requires that 
     the grant or right generally cannot be exercisable for at 
     least six months after the date of grant.
       For stock option grants that include a vesting requirement, 
     typically an option will become exercisable after the vesting 
     period ends. Some option grants vest gradually in accordance 
     with a schedule. For example, a portion of the employee's 
     options may vest after six months, with the remaining portion 
     vesting three months thereafter. Options may also vest in 
     connection with an event, such as the stock reaching a 
     certain price or the company attaining a performance target.
       In addition, the sponsors recognize that a grant that is 
     vested may not be currently exercisable by the employee 
     because of an employer's requirement that the employee hold 
     the option for a minimum period prior to exercise. In other 
     words, there may be an additional period of time after the 
     vesting period during which the option remains 
     unexerciseable. An option or SAR may meet the exercisability 
     requirements of the bill without regard to the reason why the 
     right to exercise is delayed.
       Further, if a single grant of options or SARs includes some 
     options exercisable after six months while others are 
     exercisable earlier, then those exercisable after the six 
     month period will meet the exercisability requirement even if 
     the others do not. The determination is made option by 
     option, SAR by SAR. In addition, if exercisability is tied to 
     an event, the determination of whether the six-month 
     requirement is met is based on when the event actually 
     occurs. Thus, for example, if an option is exercisable only 
     after an initial public offering (IPO) and the IPO occurs 
     seven months after grant, the option shall be deemed to have 
     met the provision's exercisability requirement.
       However, section 7(e)(8)(B) specifically recognizes that 
     there are a number of special circumstances when it is 
     permissible for an employer to allow for earlier exercise to 
     occur (in less than 6 months) without loss of the exemption. 
     For example, an employer or plan may provide that a grant may 
     vest or otherwise become exercisable earlier than six months 
     because of an employee's disability, death, or retirement. 
     The sponsors encourage the Secretary to consider and evaluate 
     other changes in employees' status or circumstances.
       Earlier exercise is also permitted in connection with a 
     change in corporate ownership. The term change in ownership 
     is intended to include events commonly considered changes in 
     ownership under general practice for options and SARs. For 
     example, the term would include the acquisition by a party of 
     a percentage of the stock of the corporation granting the 
     option or SAR, a significant change in the corporation's 
     board of directors within 24 months, the approval by the 
     shareholders of a plan of merger, and the disposition of 
     substantially all of the corporation's assets.
       The sponsors believe it important to allow employers the 
     flexibility to construct plans that allow for these earlier 
     exercise situations. However, this section is not intended to 
     in any way require employers to include these or any other 
     early exercise circumstances in their plans.
     F. Stock option and SAR programs may be awarded at fair 
         market value or discounted up to and including 15%
       Stock options and SARs generally are granted to employees 
     at around fair market value or at a discount. New section 
     7(e)(8)(B) recognizes that grants may be at a discount, but 
     that the discount cannot be more than a 15% discount off of 
     the fair market value of the stock (or in the case of stock 
     appreciation rights, the underlying stock, security or other 
     similar interest).

[[Page 5348]]

       A reasonable valuation method must be used to determine 
     fair market value at the time of grant. For example, in the 
     case of a publicly traded stock, it would be reasonable to 
     determine fair market value based on averaging the high and 
     low trading price of the stock on the date of the grant. 
     Similarly, it would be reasonable to determine fair market 
     value as being equal to the average closing price over a 
     period of days ending with or shortly before the grant date 
     (or the average of the highs and lows on each day). In the 
     case of a non-publicly traded stock, any reasonable valuation 
     that is made in good faith and based on reasonable valuation 
     principles must be used.
       The sponsors understand that the exercise price of stock 
     options and SARs is sometimes adjusted in connection with 
     recapitalizations and other corporate events. Accounting and 
     other tax guidelines have been developed for making these 
     adjustments in a way that does not modify a participant's 
     profit opportunity. Any adjustment conforming with these 
     guidelines does not create an issue under the 15% limit on 
     discounts.
     G. Employee participation in equity programs must be 
         voluntary
       New section (8)(C) of the Worker Economic Opportunity Act 
     states that the exercise of any grant or right must be 
     voluntary. Voluntary means that the employee may or may not 
     choose not to exercise his or her grants or rights at any 
     point during the stock option, stock appreciation right, or 
     employee stock purchase program, as long as that is in 
     accordance with the terms of the program. This is a simple 
     concept and it is not to be interpreted as placing any other 
     restrictions on such programs.
       It is the intent of the sponsors that this provision does 
     not restrict the ability of an employer to automatically 
     exercise stock options or SARs for the employee at the 
     expiration of the grant or right. However, an employer may 
     not automatically exercise stock options or SARs for an 
     employee who has notified the employer that he or she does 
     not want the employer to exercise the options or rights on 
     his or her behalf.
       Stock option, SARs and ESPP programs may qualify under new 
     section 7(e)(8) even though the employer chooses to require 
     employees to forfeit options, grants or rights in certain 
     employee separation situations.
     H. Performance based programs
       The purpose of new section 7(e)(8)(D) is to set out the 
     guidelines employers must follow in order to exclude from the 
     ``regular rate'' grants of stock options, SARs, or shares of 
     stock pursuant to an ESPP program based on performance. If 
     neither the decision of whether to grant nor the decision as 
     to the size of the grant is based on performance, the 
     provisions of in new section 7(e)(8)(D) do not apply. For 
     example, grants made to employees at the time of their hire, 
     and any value or income derived from these grants, may be 
     excluded provided they meet the requirements in new sections 
     7(e)(8)(A)-(C).
       New section 8(D) is divided into two clauses. The first, 
     clause (i), deals with awards of options awarded based on 
     pre-established goals for future performance, and the second, 
     clause (ii), deals with grants that are awarded based on past 
     performance.
       1. Goals for future performance
       New section 7(e)(8)(D)(i) provides that employers may tie 
     grants to future performance so long as the determinations as 
     to whether to grant and the amount of grant are based on the 
     performance of either (i) any business unit consisting of at 
     least ten employees or (ii) a facility.
       A business unit refers to all employees in a group 
     established for an identifiable business purpose. The 
     sponsors intend that employers should have considerable 
     flexibility in defining their business units. However, the 
     unit may not merely be a pretext for measuring the 
     performance of a single employee or small group of fewer than 
     ten employees. By way of example, a unit may include any of 
     the following: (i) a department, such as the accounting or 
     tax departments of a company, (ii) a function, such as the 
     accounts receivable function within a company's accounting 
     department, (iii) a position classification, such as those 
     call-center personnel who handle initial contacts, (iv) a 
     geographical segment of a company's operations, such as 
     delivery personnel in a specified geographical area, (v) a 
     subsidiary or operating division of a company, (vi) a project 
     team, such as the group assigned to test software on various 
     computer configurations or to support a contract or a new 
     business venture.
       With respect to the requirement to have ten or more 
     employees in a unit, this determination is based on all of 
     the employees in the unit, not just those employees who are, 
     for example, non-exempt employees.
       A facility includes any separate location where the 
     employer conducts its business. Two or more locations that 
     would each qualify as a facility may be treated as a single 
     facility. Performance measurement based on a particular 
     facility is permitted without regard to the number of 
     employees who are working at the facility. For example, a 
     facility would include any of the following: a separate 
     office location, each separate retail store operated by a 
     company, each separate restaurant operated by a company, a 
     plant, a warehouse, or a distribution center.
       The definitions of both a business unit and a facility are 
     intended to be flexible enough to adapt to future changes in 
     business operations. Therefore, the examples of business 
     units set forth above should be viewed with this in mind.
       Options may be excluded from the regular rate in accordance 
     with new section 7(e)(8)(D)(i) under the following 
     circumstances:
       Example 1--Employer announces that certain employees at the 
     Wichita, Kansas plant will receive 50 stock options if the 
     plant's production reaches a certain level by the end of the 
     year (note that in order to fit within this subsection, the 
     grant does not have to be made on a facility wide basis);
       Example 2--Employer announces that it will grant employees 
     working on the AnyCo. account 50 stock options each if the 
     account brings in a certain amount of revenue by the end of 
     the year, provided that there are at least 10 employees on 
     the AnyCo. account.
       Employer 3--Employer announces that certain employees will 
     receive stock options if the company reaches specified goal.
       New section 7(e)(8)(D)(i) also makes clear that otherwise 
     qualifying grants remain excludable from the regular rate if 
     they are based on an employees' length of service or minimum 
     schedule of hours or days of work. For example, an employer 
     may make grants only to employees: (i) who have a minimum 
     number of years of service, (ii) who have been employed for 
     at least a specified number of hours of service during the 
     previous twelve month period (or other period), (iii) who are 
     employed on the grant date (or a period ending on the grant 
     date), (iv) who are regular full-time employees (i.e., not 
     part-time or seasonal), (v) who are permanent employees, or 
     (vi) who continue in service for a stated period after the 
     grant date (including any minimum required hours during this 
     period). Any or all of these conditions, and similar 
     conditions, are permissible.
       2. Past performance
       New section 7(e)(8)(D)(ii) clarifies that employers may 
     make determinations as to existence and amount of grants or 
     rights based on past performance, so long as the 
     determination is in the sole discretion of the employer and 
     not pursuant to any prior contract. Thus, employers have 
     broad discretion to make grants as rewards for the past 
     performance of a group of employees, even if it is not a 
     facility or business unit, or even for an individual 
     employee. The determination may be based on any performance 
     criteria, including hours of work, efficiency or 
     productivity.
       Under new section 7(e)(8)(D)(ii), employers may develop a 
     framework under which they will provide options in the 
     future, provided that to the extent the ultimate 
     determination as to the fact of and the amount of grants or 
     rights each employee will receive is based on past 
     performance, the employer does not contractually obligate 
     itself to provide the grant or rights to an employee. Thus, 
     new section 7(e)(8)(D)(ii) would allow an employer to 
     determine in advance that it will provide 100 stock options 
     to all employees who receive ``favorable'' ratings on their 
     performance evaluations at the end of the year, and it would 
     allow the employer to advise employees, in employee handbooks 
     or otherwise, of the possibility that favorable evaluations 
     may be rewarded by option grants, so long as the employer 
     does not contractually obligate itself to provide the grants 
     or in any other way relinquish its discretion as to the 
     existence or amount of grants.
       Similarly, the fact that an employer makes grants for 
     several years in a row based on favorable performance 
     evaluation ratings, even to the point where employees come to 
     expect them, does not mean in itself that the employer may be 
     deemed to have ``contractually obligated'' itself to provide 
     the rights.
       Some examples of performance based grants that fit within 
     new section 7(e)(8)(D)(ii) are as follows:
       Example A--Company A awards stock options to encourage 
     employees to identify with the company and to be creative and 
     innovative in performing their jobs. Company A's employee 
     handbook includes the following: ``Company A's stock option 
     program is a long-term incentive used to recognize the 
     potential for, and provide an incentive for, anticipated 
     future performance and contribution. Stock option grants may 
     be awarded to employees at hire, on an annual basis, or both. 
     All full-time employees who have been employed for the 
     appropriate service time are eligible to be considered for 
     annual stock option grants.''
       Company A provides stock options to most nonexempt 
     employees following their performance review. Each employee's 
     manager rates the employee during a review process, resulting 
     in a rating of from 1 to 5. The rating is based upon the 
     manager's objective and subjective analysis of the employee's 
     performance. The rating is then put into a formula to 
     determine the number of options an employee is eligible to 
     receive, based on the employee's level within the company, 
     the product line that the employee works on, and the value of 
     the product to the company's business. Employees are aware a 
     formula is used. The Company then informs the

[[Page 5349]]

     employee of the number of options awarded to him or her.
       Managers make it clear to employees that the options are 
     granted in recognition of prior performance with the 
     expectation of the employee's future performance, but no 
     contractual obligation is made to employees. This process is 
     repeated annually, with employees eligible for stock options 
     each year based on their annual performance review. Most 
     employees receive options annually based upon their 
     performance review rating and their level in the company.
       Example B--Company B manages its program similarly to 
     company A, with some notable exceptions. Company B has a very 
     detailed performance management system, under which all 
     employees successfully meeting the expectations of their job 
     receive options. The employee's job expectations are more 
     clearly spelled out on an annual basis than under Company A's 
     plan. Once a year, the employee undergoes a formal, written, 
     performance review with his or her manager. If work is 
     satisfactory, the employee receives a predetermined but 
     unannounced number of options. Unlike Company A, which 
     provides different amounts of options to employees based upon 
     a numeric performance rating, Company B provides the same 
     number of options to all employees who receive satisfactory 
     employment evaluations. Over 90 percent of Company B's 
     employees receive options annually, and in many years, this 
     percentage exceeds 95 percent.
       In both Example A and Example B, the employers set up in 
     advance the formula under which option decisions are made; 
     however, the decisions as to whether an individual employee 
     would receive options and how many options he or she would 
     receive was made based on past performance at the end of the 
     performance period, but not pursuant to a prior contractual 
     obligation made to the employees. The fact that the employer 
     determines a formula or program in advance does not 
     disqualify these examples from new section 7(e)(8).
     I. Extra compensation
       The Worker Economic Opportunity Act also amends section 
     7(h) of the FLSA (29 U.S.C. Sec.  207(h)) to ensure that the 
     income or value that results from a stock option, SAR or ESPP 
     program, and that is excluded from the regular rate by new 
     section 7(e)(8), cannot be credited by an employer toward 
     meeting its minimum wage obligations under section 6 of the 
     Act or overtime obligations under section 7 of the Act. The 
     language divides section 7(h) into two parts, 7(h)(1) and 
     7(h)(2). Section 7(h)(1) states that an employer may not 
     credit an amount, sum, or payment excluded from the regular 
     rate under existing sections 7(e)(1-7) or new section 7(e)(8) 
     towards an employer's minimum wage obligation under section 6 
     of the Act. When section 7(h)(1) is read together with 
     section 7(h)(2), it states that an employer may not credit an 
     amount excluded under existing sections 7(e)(1-4) or new 
     section 7(e)(8) toward overtime payments. However, consistent 
     with existing 7(h), extra compensation paid by an employer 
     under sections 7(e)(5-7) may be creditable towards an 
     employer's overtime obligations. This change shall take 
     effect on the effective date but will not affect any payments 
     that are not excluded by section 7(e) and thus are included 
     in the regular rate.
     J. The legislation includes a broad pre-effective date safe 
         harbor and transition time
       In drafting the Worker Economic Opportunity Act, the 
     sponsors hoped to create an exemption that would be broad 
     enough to capture the diverse range of broad-based stock 
     ownership programs that are currently being offered to non-
     exempt employees across this nation. However, in order to 
     reach a consensus, the new exemption had to be tailored to 
     comport with the existing framework of the FLSA. The result 
     is a series of requirements that stock option, SAR and ESPP 
     programs must meet in order for the proceeds of those plans 
     to fit within the newly created exemption.
       Because of the circumstances that give rise to this 
     legislation, the pre-effective date safe harbor is 
     intentionally broader than the new exemption. The sponsors 
     did not want to penalize those employers who have been 
     offering broad-based stock option, SAR and ESPP programs 
     simply because these programs would not meet all the new 
     requirements in section 7(e)(8). Thus, the safe harbor in 
     section 2(d) of the Act comprehensively protects employers 
     from any liability or other obligations under the FLSA for 
     failing to include any value or income derived from stock 
     option, SAR and ESPP programs in a non-exempt employee's 
     regular rate of pay. The safe harbor applies to all grants or 
     rights that were obtained under such programs prior to the 
     effective date, whether or not such programs fit within the 
     new requirements of section 7(e)(8). If a grant or right was 
     initially obtained prior to the effective date, it is covered 
     by the safe harbor even though it vested later or was 
     contingent on performance that would occur later. In 
     addition, normal adjustments to a pre-effective date grant or 
     right, such as those that are triggered by a 
     recapitalization, change of control or other corporate event, 
     will not take the grant or right outside the safe harbor.
       On a prospective basis, the sponsors realized that many 
     employers would need time to evaluate their programs in light 
     of the new law and to make the changes necessary to ensure 
     that the programs will fit within the new section 7(e)(8) 
     exemption. Consequently, the sponsors adopted a broad 
     transition provision to apply to stock option, SAR and ESPP 
     programs without regard to whether or not they meet the 
     requirements for these plans set forth in the legislation. 
     Specifically, section 2(c) of the legislation contains a 90-
     day post enactment delayed effective date. The sponsors 
     believe that the vast majority of employers who offer stock 
     option, SAR and ESPP programs to non-exempt employees will be 
     able to use the transition period in section 2(d)(1) to 
     modify their programs to conform with the requirements of the 
     legislation.
       In addition, the sponsors felt that there were two 
     circumstances where a further extension of this broad 
     transition relief was appropriate. First, the legislation 
     recognizes that some employers would need the consent of 
     their shareholders to change their plans. Section 2(d)(2) 
     provides an additional year of transition relief to any 
     employer with a program in place on the date this legislation 
     goes into effect that will require shareholder approval to 
     make the changes necessary to comply with the new 
     requirements of section 7(e)(8). Second, the legislation 
     extends the transition relief to cover situations wherein an 
     employer's obligations under a collective bargaining 
     agreement conflict with the requirements of this Act. Section 
     2(d)(3) eliminates any potential conflict by allowing 
     employers to fulfill their pre-existing contractual 
     obligations without fear of liability.


                     V. Regulatory impact statement

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


                    VI. Section-by-Section Analysis

       Sec. 2. (a) Amendments to the Fair Labor Standards Act--The 
     legislation amends Section 7(e) of the Fair Labor Standards 
     Act of 1938 (29 U.S.C. Sec.  207(e)) by creating a new 
     subsection, 7(e)(8), which will exclude from the definition 
     of the regular rate of pay any income or value nonexempt 
     employees derive from an employer stock option, stock 
     appreciation right, or bona fide employee stock purchase 
     program under certain circumstances. Specifically, the 
     legislation adds the following provisions to the end of 
     Section 7(e) of the Fair Labor Standards Act:
       (8) The new exclusion provides that when an employer gives 
     its employees an opportunity to participate in a stock 
     option, stock appreciation right or a bona fide employee 
     stock purchase program (as explained in the Explanation of 
     the Bill and Sponsor's Views), any value or income received 
     by the employee as a result of the grants or rights provided 
     pursuant to the program that is not already excludable from 
     the regular rate of pay under sections 7(e)(1-7) of the Act 
     (29 U.S.C. Sec.  207(e)), will be excluded from the regular 
     rate of pay, provided the program meets the following 
     criteria--
       (8)(A) The employer must provide employees who are 
     participating in the stock option, stock appreciation right 
     or bona fide employee stock purchase program with information 
     that explains the terms and conditions of the program. The 
     information must be provided at the time when the employee 
     begins participating in the program or at the time when the 
     employer grants the employees stock options or stock 
     appreciation rights.
       (8)(B) As a general rule, the stock option or stock 
     appreciation right program must include at least a 6 month 
     vesting (holding) period. That means that employees will have 
     to wait at least 6 months after they receive stock options or 
     a stock appreciation rights before they are able to exercise 
     the right for stock or cash. However, in the event that the 
     employee dies, becomes disabled, or retires, or if there is a 
     change in corporate ownership that impacts the employer's 
     stock or in other circumstances set forth at a later date by 
     the Secretary in regulations, the employer has the ability to 
     allow its employees to exercise their stock options or stock 
     appreciation rights sooner. The employer may offer stock 
     options or stock appreciation rights to employees at no more 
     than a 15 percent discount off the fair market value of the 
     stock or the stock equivalent determined at the time of the 
     grant.
       (8)(C) An employee's exercise of any grant or right must be 
     voluntary. This means that the employees must be able to 
     exercise their stock options, stock appreciation rights or 
     options to purchase stock under a bona fide employee stock 
     purchase program at any time permitted by the program or to 
     decline to exercise their rights. This requirement does not 
     preclude an employer from automatically exercising 
     outstanding stock options or stock appreciation rights at the 
     expiration date of the program.
       (8)(D) If an employer's grants or rights under a stock 
     option or stock appreciation right program are based on 
     performance, the following criteria apply.
       (1) If the grants or rights are given based on the 
     achievement of previously established

[[Page 5350]]

     criteria, the criteria must be limited to the performance of 
     any business unit consisting of 10 or more employees or of 
     any sized facility and may be based upon that unit's or 
     facility's hours of work, efficiency or productivity. An 
     employer may impose certain eligibility criteria on all 
     employees before they may participate in a grant or right 
     based on these performance criteria, including length of 
     service or minimum schedules of hours or days of work.
       (2) The employer may give grants to individual employees 
     based on the employee's past performance, so long as the 
     determination remains in the sole discretion of the employer 
     and not according to any prior contract requiring the 
     employer to do so.
       (b) Extra Compensation--The bill amends section 7(h) of the 
     Fair Labor Standards Act (29 U.S.C. 207(h) to make clear that 
     the amounts excluded under section 7(e) of the bill are not 
     counted toward an employer's minimum wage requirement under 
     section 6 of the Fair Labor Standards Act and that the 
     amounts excluded under sections 7(e)(1)-(4) and new section 
     7(e)(8) are not counted toward overtime pay under section 7 
     of the Act.
       (c) Effective Date--The amendments made by the bill take 
     effect 90 days after the date of enactment.
       (d) Liability of Employers--
       (1) No employer shall be liable under the FLSA for failing 
     to include any value or income derived from any stock option, 
     stock appreciation right and employee stock purchase program 
     in an non-exempt employee's regular rate of pay, so long as 
     the employee received the grant or right at any time prior to 
     the date this amendment takes effect.
       (2) Where an employer's pre-existing stock option, stock 
     appreciation right, or employee stock purchase program will 
     require shareholder approval to make to the changes necessary 
     to comply with this amendment, the employer shall have an 
     additional year from the date this amendment takes effect to 
     change its plan without fear of liability.
       (3) Where an employer is providing stock options, stock 
     appreciation rights, or an employee stock purchase program 
     pursuant to a collective bargaining agreement that is in 
     effect on the effective date of this amendment, the employer 
     may continue to fulfill its obligations under that collective 
     bargaining agreement without fear of liability.
       (e) Regulations--the bill gives the Secretary of Labor 
     authority to promulgate necessary regulations.
       Submitted April 12, 2000 by the Sponsors of S. 2323.

     Mitch McConnell.
     Christopher J. Dodd.
     James M. Jeffords.
     Michael B. Enzi.


                               Footnotes

     \1\ David Lebow et al., Recent Trends in Compensation 
     Practices, Board of Governors of the Federal Reserve System, 
     Fin. and Econ. Discussion Series, No. 1999-32, July 1999.
     \2\ Anita U. Hattiangadi, Taking Stock: $470,000 at Risk for 
     Hourly Workers, Employment Policy Foundation, Mar. 2, 2000, 
     at 4, and Fig. 2.
     \3\ Any stock option program that meets the criteria under 
     section 422 of the Internal Revenue Code (called an Incentive 
     Stock Option) is considered a qualified option. 26 U.S.C. 
     Sec. 422.
     \4\ 26 U.S.C. Sec. 423.
     \5\ 29 U.S.C. Sec. Sec. 201, et seq.
     \6\ 29 U.S.C. Sec. 207(a)(1).
     \7\ 29 U.S.C. Sec. 207(e).
     \8\ 29 U.S.C. Sec. 207(e)(1).
     \9\ 29 U.S.C. Sec. 207(e)(3).
     \10\ Id.
     \11\ Id.
     \12\ 29 U.S.C. Sec. 207(e)(4).
     \13\ See e.g., Conference Report on H.R. 5856, H. Rept. No. 
     1453.
     \14\ U.S. Dept of Lab, Bureau of Lab. Statistics, Employer 
     Costs For Employee Conpensation--March 1999, available at 
     ftp://146.142.4.23/pub/news.release/ecec.txt.
     \15\ A wage-hour opinion letter responds to a request for the 
     Department of Labor's view of how the law applies to a given 
     set of facts. The letters are available to the public upon 
     request or through commercial reporting services. Opinion 
     letters have significant practical effects: ``[T]he 
     Administrator's interpretation . . . has the characteristic 
     not only of securing `expected compliance' . . . but of 
     possibly stimulating double damage suits by employees who 
     need not fear that they would be at odds with the Government 
     Officials involved.'' National Automatic Laundry & Cleaning 
     Council v. Shultz, 143 U.S. App. D.C. 274 (D.C. Cir. 1971).
     \16\ Letter from Daniel F. Sweeney, Office of Enforcement 
     Policy, Fair Labor Standards Team, Wage & Hour Division, Feb. 
     12, 1999.
     \17\ Hearing on the Treatment of Stock Options and Employee 
     Investment Opportunities Under the Fair Labor Standards Act 
     before the House Committee on Education and the Workforce, 
     Subcommittee on Employment and Training, 106th Cong. 2d Sess. 
     Mar. 2, 2000 (Statement of T. Michael Kerr, at 4-5).
     \18\ Id. at 5. The testimony also noted that the program's 
     automatic exercise feature prevented the employees' 
     participation from being voluntary, as required under the 
     Division's rules for thrift savings programs.
     \19\ Letter from Daniel F. Sweeney, Office of Enforcement 
     Policy, Fair Labor Standards Team, Wage & Hour Division, Feb. 
     12, 1999.
     \20\ Hearing on the Treatment of Stock Options and Employee 
     Investment Opportunities Under the Fair Labor Standards Act 
     before the House Committee on Education and the Workforce, 
     Subcommittee on Employment and Training, 106th Cong. 2d Sess. 
     Mar. 2, 2000 (Statement of J. Randall MacDonald, at 2).
     \21\ Id. (addendum to statement of Patricia Nazemetz, Letter 
     from Gary J. Bonadonna, Director & International Vice 
     President, UNITE, February 22, 2000).
     \22\ Id. (statement of T. Michael Kerr, at 7).
     \23\ 26 U.S.C. Sec. 423.

  Mr. McCONNELL. Mr. President, I yield the floor.
  The PRESIDING OFFICER. The distinguished Senator from Connecticut, 
Mr. Dodd, is recognized.
  Mr. DODD. Mr. President, I appreciate how the Chair pronounces that 
name so well. I am very grateful to the Chair.
  I am deeply pleased to be joining my good friend and colleague from 
Kentucky in authoring this legislation, along with several of our other 
colleagues. Senator McConnell mentioned several of them. But certainly 
Senator Enzi, Senator Bennett, Senator Robb, Senator Murray, Senator 
Bingaman, Senator Reed, Senator Kerrey, among others are also 
cosponsors of this bill.
  I am also pleased to inform this body that the Clinton-Gore 
administration is a strong backer of the Worker Economic Opportunity 
Act, which is presently before us.
  We have one of those unique opportunities that is not always 
available to us in this Congress of the United States; that is, we are 
actually going to do something this afternoon that couldn't have any 
rancor associated with it. It will make a difference in the lives, we 
think, of millions of people who would like to share in the remarkable 
prosperity we are enjoying.
  We are backed by the administration. It is a bipartisan effort in 
this body. I am told that a similar version of this bill has been 
introduced in the other Chamber, the House of Representatives.
  This is actually something we may accomplish, and we are not packing 
the galleries. It is not going to be a headline story tomorrow, but it 
will make a difference in people's lives.
  We are in a period of sustained economic growth, almost 
unprecedented, if not unprecedented, in the 210-year history of our 
Nation. The unemployment rate today at 4.1 percent is the lowest it has 
been in 30 years. More than 21 million jobs have been created since 
1993.
  I see my colleague and good friend from Wyoming here. He is one of 
the cosponsors of this bill as well. I mentioned him earlier. We are 
pleased he is with us.
  We are enjoying almost unprecedented prosperity in the country along 
with the remarkable results of low unemployment, the lowest in some 
three decades. More than 21 million new jobs have been created in the 
last 7 years in our Nation. Inflation is down, and real wages are 
rising and have grown in 5 consecutive years; again, almost an 
unprecedented record in our Nation's history.
  For the first time in 50 years, the country posted three consecutive 
surpluses. Think of that. For the first time in decades, we are 
watching the deficit clock run in the opposite direction. Instead of 
how much debt we are accumulating every minute and every second, we are 
now reducing the national debt with the prospect of eliminating it by 
the year 2013.
  What greater gift could we give to the next generation than to burn 
the national mortgage, if you will. The economy is roaring. It is 
producing a prosperity in the confidence which very few people could 
have imagined a few short years ago.
  Factory workers, secretaries, and other nonexempt workers form the 
backbone of companies, large and small, that are also making a 
difference. These individuals have been driving our economy. It is the 
view of those who sponsor this bill since they are driving so much of 
this economy, they ought not to have to take a back seat to anyone in 
sharing in the prosperity this economy has produced.
  In today's new economy, many companies look for creative ways to 
recruit, train, and reward employees. The Federal Reserve Board of 
Governors estimated approximately 17 percent of large firms in the 
United States introduced a stock option program and 37 percent have 
broadened eligibility for the stock option programs in the previous 2 
years.
  Ten years ago these options were a perk for the chief executive 
officer and other corporate executives in the corporation. Less than 1 
million people received stock options in the early 1990s.

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Today, between 7 and 10 million people across this country are offered 
stock options. According to the National Center for Employee Ownership, 
more than 6 million workers receiving options are nonexecutives. In a 
1997 survey, NECO reported that the average option grant value was 
$37,000 for professional employees, $41,000 for technical employees, 
and $12,500 for administrative employees.
  This is very good for the long-term economic prospects in this 
country.
  Clearly, the trend is that a broad cross section of companies offers 
stock option programs. In these changing times, I am concerned, as is 
my colleague from Kentucky and others, about laws working for 
businesses and employees. We need to work with them to find new ways to 
reward working people. As the economy changes, it is only fitting we 
update our laws, as well. That is why I join with my colleagues, and 
why others have joined, why the administration has joined, to change 
the 1938 Fair Labor Standards Act.
  The Fair Labor Standards Act of 1938 is the benchmark of worker 
protection laws. I want to make very clear that the bill that is before 
the Senate today, S. 2323, does absolutely nothing to undermine the 
foundation of that critical and important piece of legislation.
  My colleagues in the administration determined that the 1938 law 
needed to be amended in order to incorporate the emergence of stock 
option programs being offered to hourly employees. Our bill amends the 
Fair Labor Standards Act to clarify that the gains from stock options 
do not need to be included in the calculation of overtime pay. That is 
what the 1938 law said. That is where a lot of the confusion arose.
  Our legislation strikes a balance between protecting employee rights 
and offering flexibility to employers. This bill excludes from the 
regular rate stock options, stock appreciation rights or bona fide 
stock purchase programs that meet specific vesting, disclosure and 
determination requirements. A safe harbor is in effect to protect those 
companies that already had established stock option programs for 
nonexempt employees, including those programs provided under a 
collective bargaining agreement or requiring shareholder approval.
  I would like to commend the staff for their hard work on this bill--
Sheila Duffy of my staff, Denise Grant with Senator McConnell, and 
Leslie Silverman and Elizabeth Smith with the HELP Committee.
  This proposal has broad bipartisan, bicameral support between the 
executive and legislative branches.
  I ask unanimous consent two letters, one from the Union of the 
Needletrades, industrial and textile employees, and one from the ERISA 
Industry Committee, be printed in the Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

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

                                            Gary J. Bonadonna,

                                                         Director,
     International Vice President.
                                  ____



                                 The ERISA Industry Committee,

                                   Washington, DC, April 10, 2000.
       Dear Senator: The ERISA Industry Committee (ERIC) strongly 
     urges you to support S. 2323, the ``Worker Economic 
     Opportunity Act.'' S. 2323 is expected to come before the 
     Senate for a vote during the week of April 10. Timely 
     enactment of this legislation is critical to the continued 
     viability of broad-based stock options and other similar 
     programs that provide employees with equity ownership in the 
     companies for which they work.
       Introduced March 29 by Senator Mitch McConnell, the 
     ``Worker Economic Opportunity Act'' enjoys strong bipartisan 
     and bicameral support. The bill is the result of a 
     cooperative effort between congressional leaders, the 
     Department of Labor, and the business community.
       Stock options increasingly are available to a broad range 
     of employees, not just executives. A recent survey by William 
     M. Mercer, Inc. reports a better than twofold increase since 
     1993 in the percentage of major industrial and service 
     corporations that have a broad-based stock option plan.
       In spite of the growing enthusiasm for employee equity 
     ownership among employers and employees, an advisory letter 
     interpreting current law issued by the Department of Labor's 
     Wage and Hour Division has effectively stopped this movement 
     in its tracks.
       According to the Department's interpretation of the Fair 
     Labor Standards Act (FLSA) of 1938, any gains from the 
     exercise of stock options recognized by rank and file workers 
     must be included in their ``regular rate of pay'' for 
     purposes of computing overtime wages. Thus, in order to 
     comply with the Wage and Hour Division's interpretation of 
     the FLSA, employers would be required to track stock options 
     granted to rank and file employees and recalculate their 
     overtime payments once the options have been exercised.
       No rational employer will subject itself to this 
     impracticable burden. As a result, rank and file workers will 
     be denied the valued opportunity to become a stakeholder in 
     their employer's future.
       S. 2323 is narrowly tailored to directly address the issues 
     raised by the Wage and Hour Division's advisory letter 
     without compromising any long-standing worker protections 
     under FLSA. Most important, this legislation will benefit 
     millions of working Americans by facilitating the continued 
     expansion of equity-based compensation programs. It should be 
     enacted without delay.
       Thank you for considering our views. Please feel free to 
     call on us if you have any questions or need additional 
     information.
           Very truly yours,
                                                  Mark J. Ugoretz,
                                                        President.

  Mr. DODD. Mr. President, this bill is about fundamental fairness. I 
urge our colleagues to support this Worker Economic Opportunity Act to 
give working Americans a chance to share in our Nation's prosperity.
  I ask further unanimous consent that during the remainder of this 
debate and the remainder of the day the bill be left open for 
additional cosponsorships. We have 20 or 30, but I suspect there may be 
others who would like their names associated with this bill. I ask 
unanimous consent cosponsorship of the bill be left open for the 
remainder of today's legislative business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DODD. I yield the floor.
  The PRESIDING OFFICER (Mr. Roberts). The distinguished Senator from 
Vermont is recognized.
  Mr. JEFFORDS. Mr. President, I commend the Senator from Connecticut 
and the Senator from Kentucky for their work on the bill being 
presented today. We are here today because we believe that all workers 
should have the opportunity to share in the success of their companies 
and it is incredibly important we do all we can to make sure that this 
legislation gets passed with the vote it deserves.
  More and more employers are providing equity ownership opportunities 
to all of their employees and we are here today because we want to 
foster this trend which is good for our workers and for our nation's 
economic growth. The Worker Economic Opportunity Act will encourage 
this trend by

[[Page 5352]]

changing the Fair Labor Standards Act to address the needs of the 21st 
century.
  Over the last ten years, we have witnessed tremendous change in the 
structure of our Nation's economy in large part due to the birth of the 
internet and e-commerce. The vitality of our economy is a tribute to 
the creative and entrepreneurial genius of thousands of individual 
business people and the indispensable contribution of the American 
workforce.
  As legislators during this exciting time, we are challenged to 
maintain an environment that will foster the continued growth of our 
economy. We must work to ensure that our laws are in sync with the 
changing environment. However, many of the laws and policies governing 
our workplace have fallen out of sync with the information age and 
there has been particular resistance to changing our labor laws. As 
chairman of the Senate Committee with jurisdiction over workplace 
issues, I believe it is time to examine and modify these laws to meet 
the rapidly evolving needs of the American workforce.
  The Fair Labor Standards Act (FLSA), for example, was enacted in the 
late 1930s, to establish basic standards for wages and overtime pay. 
While the principles behind the FLSA have not changed, its rigid 
provisions make it difficult for employers to accommodate the needs of 
today's workforce. In early January, we discovered the problem that we 
are addressing here today. It is extremely important. We learned that 
the sixty-year old law actually operates to deter employers from 
offering equity participation programs, such as stock options, to 
hourly employees.
  These programs are most prevalent in the high tech industry, yet 
increasingly employers across the whole spectrum of American industry 
have begun to offer them. And, while these programs used to be reserved 
for executives, recent data shows that they are making their way down 
the corporate ladder. A recent Federal Reserve Board of Governors study 
found that 17% of firms have introduced stock options programs within 
the last two years and 37% have broadened eligibility for their stock 
option programs in the last two years.
  Broad-based equity programs prove valuable to both employers and 
employees. For employers, these programs have become a key tool for 
employee recruitment, motivation and retention. Employees seek out 
companies offering these programs because they enable workers to become 
owners and reap the benefits of their company's growth.
  When I first heard about the FLSA's application to stock options, I 
became very concerned about its impact on our workforce. I was pleased 
to discover that Senators McConnell, Dodd, and Enzi shared similar 
concerns and that the Department of Labor also recognized that we had a 
problem on our hands that would require a legislative solution. 
Together we crafted the legislation we are debating here today.
  We have also worked together on a Joint Statement of Legislative 
Intent on S. 2323 which is intended to reflect the discussions the 
sponsors had with the Department of Labor during the drafting of the 
legislation, and the sponsors' intent and understanding of this 
legislation.
  I urge all my colleagues to join me in supporting this important 
legislation. It is a symbolic first step in the process of aligning our 
labor laws with the new economy.
  I commend the Senator from Wyoming who is one of the initial people 
who understood the importance of this issue and who came forward to 
help other Members understand the dangers of the present situation and 
to bring about the bill we have before the Senate. I am happy to yield 
the floor to my wonderful Senator from Wyoming.
  The PRESIDING OFFICER (Mr. Gregg). The distinguished Senator from 
Wyoming is recognized.
  Mr. ENZI. Mr. President, I commend the chairman of the Health, 
Education, Labor, and Pensions Committee, the jurisdictional committee, 
for this very important piece of legislation. I appreciate his allowing 
me to be the subcommittee chairman for the labor portion of that 
committee, which is referred to as the Employment, Safety and Training 
Subcommittee. We get to work on these kinds of issues on a regular 
basis. In the past, it has been known as one of the more contentious 
committees. But I recommend people take a look and note it is one of 
the more reasonable committees now, where we are reaching bipartisan 
solutions to problems for people in the workplace. That has always been 
our intent. We are actually having some confidence in each other now 
and are able to achieve those sorts of things.
  I am pleased to be able to rise today to speak in favor of S. 2323, 
the Worker Economic Opportunity Act. The large number of bipartisan 
cosponsors on this bill says a great deal for both its importance and 
its balanced, fair nature. I commend the hard work of my colleagues, 
Senator Jeffords, Senator McConnell, and Senator Dodd, both in crafting 
a solution on the issue and in garnering the bipartisan support for the 
bill.
  Elizabeth Smith, the legal counsel for the Employment, Safety and 
Training Subcommittee, has been one of the coordinators of the bill and 
has helped us to bring it all together. That is not only coordination 
between the House and Senate, between Republicans and Democrats, but it 
is also with the administration. A few days ago we had an opportunity 
to gather and talk about this bill and Secretary Herman was there, and 
she has played a role in getting this done.
  The problem was brought to us from where it should come, and that is 
the workers. Workers were being told that because of the labor laws, 
their employers may have to stop giving them stock options.
  That is an important factor because stock options are seen as a way 
for people throughout this country, workers throughout this country, to 
own a share of the company. The better the company does, the better 
they do. It is a way that from their job, and the risk they take having 
that job, employees get to benefit from the productivity and returns 
they put into the business.
  And, boy, some of these businesses are really doing well; 
millionaires are being created overnight--and we want hourly workers to 
be able to take advantage of those stock options.
  A little flaw, because of the amount of time that has gone by since 
fair labor standards passed, said you will have to do some calculating 
so the value of that stock option shows up as a direct payment.
  Nobody really knows what the value of those stock options are, 
particularly at the time they receive them. They do know sometime down 
the road, when they take advantage of them, and probably even further 
down the road when they actually get to sell them, but there is a huge 
change, hopefully, in the value of that stock between the time it is 
awarded to them and the time there is some value to it. So how do you 
calculate that back in years, to the time they received it, to 
calculate it into overtime? The difficulty of calculating it led the 
companies to say: We can't figure out a formula for doing it. The 
Department has a formula for doing it, but we can't possibly process 
that through so we can avoid court action. So what we are going to do 
is we are going to end stock options. That is when the workers said to 
Congress: Solve this problem for us.
  That is what brings everybody together for a solution, the people at 
the far end asking that they be allowed to continue participating in 
the prosperity of this country. That is what has happened in this 
instance. We are here today because the workplace has changed for the 
better, but the labor statutes have not. Many employers now give stock 
options, not only to the executives and the managers, they give it to 
secretaries, factory workers, janitors, mailroom clerks--everybody. 
Those are the hourly employees who provide the critical support on 
which a company's success is built.
  I am proud of those employers who give stock options to those 
employees. They recognize the value of giving workers a stake in the 
company's business. They are leading the charge to move workplaces into 
a new, modern era of better employer-employee relations. In fact, the 
line is dimming on

[[Page 5353]]

who is the employer and who is the employee.
  Unfortunately, the decades-old Fair Labor Standards Act has not kept 
pace. This statute, drafted during a very different time in the history 
of the American workplace, threatened to prevent employers from giving 
hourly employees stock options. S. 2323 removes this threat and ensures 
that companies can continue to give stock options to hourly employees 
so they can share in the success of their employer and this country's 
economic growth.
  This legislation takes an important step toward bringing an outdated 
labor statute up to date with the modern workplace. I am very concerned 
there are many other examples of problems such as the one we are 
solving today, examples of other obsolete restrictions in the 30- to 
60-year-old labor statutes that are stifling the development of the new 
creative ways to benefit employees, such as the stock options program 
and telecommuting arrangements. We should be encouraging these advances 
in employer-employee relations, not stifling them. By passing this 
Worker Economic Opportunity Act we can provide encouragement. I hope we 
can continue to look for ways to solve similar problems.
  I am particularly pleased the Department of Labor has worked with us 
in this bipartisan group. As chairman of the Employment, Safety and 
Training Subcommittee, I firmly believe cooperation between lawmakers 
and agency is the best way to develop practical solutions that benefit 
both the employees and the businesses.
  I want to mention we have been doing that for about 2 years now. We 
passed the first changes in OSHA in 27 years, a year and a half ago; 
little incremental changes that will make a difference to the workers, 
that will make the workplace safer. That is what we are trying to do.
  Recently we worked together on home inspections. OSHA, through a 
letter, had suggested they were going to go into the homes and check 
and see how telecommuters were operating. Home is the least safe place 
there is. It worried a lot of companies about how they were going to do 
the inspections without imposing on the privacy of their employees. 
Employees were worried about companies coming into their homes. The 
Department and OSHA and Congress saw the error of that. The Department 
withdrew the letter. Both OSHA and congress agreed that OSHA should not 
be a threat to people working in their home offices. People who work in 
their homes really enjoy doing that. There are a lot of benefits to 
them, many of which people who work in the District would understand 
because of the parking and the traffic problems. I was very pleased 
that the agency and congress agreed on this.
  Last week we had agreement on a funding proposal, a sense-of-the-
Senate proposal that would have been on the budget agreement except for 
a parliamentary move that was done at the last moment. But there was 
agreement on both sides that there needs to be not only enforcement of 
OSHA--which does get attention--but justification by OSHA of how it is 
reducing workplace illnesses and injuries and a discussion of the value 
of compliance assistance activities, which are extremely important.
  There are 12,000 pages of OSHA regulations. It is difficult for a 
small businessman to make it through that many pages of that kind of 
rhetoric. So we have been trying to make it more incentive-based, so 
the agency would participate more in telling them what they need to do 
instead of beating them over the head for what they did not do. We 
think, with a more cooperative program, there will be more safety in 
the workplace; that employers will not live in fear of OSHA, but rather 
in anticipation of help from OSHA and an understanding of the way they 
can keep their employees safe.
  Those are a few of the things we are working together on to have a 
better workplace. This legislation is a key piece and a key beginning 
to a number of changes we can make to affect the workers of this 
country. I look forward to working together on similar measures in the 
future as we move toward the shared goal of better matching our Federal 
laws to the needs of the modern workplace.
  I yield the floor.
  Mr. JEFFORDS. Mr. President, I commend the Senator from Wyoming for 
his work not only on this bill but on the other legislation he 
discussed. I also commend him for his help in the review of existing 
labor laws. The Senator understands the import of bringing our labor 
laws in line with the needs into the 21st Century. I depend upon him, 
and he produces.
  Mr. ABRAHAM. Mr. President, I rise today to express my support for 
the Worker Economic Opportunity Act. This bipartisan legislation, also 
supported by the Department of Labor, will encourage employers to 
provide stock options to all employees, not just executives, ensuring 
that all of our workers will continue to have the opportunity for an 
ownership stake in their company.
  In recent years, there have been revolutionary changes in the 
workplace, creating new opportunities for our working families--
opportunities, which for a long time, frequently existed only for a 
select privileged few. One of the most positive developments has been 
the significant increase in the availability of stock option plans for 
workers, specifically hourly workers.
  The decades-old employment laws do not accommodate newer workplace 
innovations and their application would unfairly punish hourly workers 
by making their stock-option programs disproportionately expensive and 
complex for employers. Subsequently, recent Department of Labor legal 
interpretations and policies have threatened the availability of stock 
option plans for hourly employees.
  Mr. President, it is imperative that Congress send a clear message 
that the positive developments taking hold around the country should be 
encouraged, not thwarted.
  The Worker Economic Opportunity Act would send just a message, 
ensuring that all employees will continue to have the opportunity to 
share in the economic growth and success of their company formerly 
enjoyed only by corporate executives. Moreover, companies, especially 
smaller companies with high capital costs in development, will be able 
to maintain the capital resources necessary to compete in the rapid 
evolving global economy and, at the same time, reward and retain highly 
qualified and valued employees.
  Finally, Mr. President, I would like to take a moment to thank 
Senator McConnell for his work and dedication toward this legislation 
and the Department of Labor for recognizing the need to accommodate 
today's employee and workplace innovations.
  I yield the floor.
  Ms. COLLINS. Mr. President, I rise today to express my strong support 
for S. 2323, the Worker Economic Opportunity Act. I am pleased to be a 
cosponsor of this legislation, which has broad bipartisan support in 
both the Senate and the House of Representatives.
  In recent years, we have seen substantial growth in the use of 
employee equity programs such as stock options, stock appreciation 
rights, and employee stock purchase plans. This growth has not only 
been in the number of companies which offer such plans, but also in the 
employees to whom such plans are available. While long used as a form 
of incentive for corporate executives, equity programs are now 
available to more employees than ever. In fact, a 1998 survey by Hewitt 
Associates found that in excess of two-thirds of large U.S. companies 
offered stock options to non-executive employees, and more than a 
quarter of these companies make such plans available to their entire 
workforce.
  Unfortunately, the Fair Labor Standards Act, which was enacted in 
1938, does not recognize the importance of stock options as an employee 
benefit. Thus, when asked how to deal with stock options when 
calculating overtime pay for hourly-wage employees, the Department of 
Labor ruled that the options would have to be included in the 
calculations.
  The end result of this decision left employers with two options: One, 
go

[[Page 5354]]

through the burdensome task of recalculating an employee's regular pay 
rate, retroactively, based on the change in the value of the stock from 
the time the option was granted until it was exercised; or, two, do not 
offer any form of equity program to any employee who is not exempt from 
the Fair Labor Standards Act.
  Since complying with the Department of Labor's onerous ruling would 
not likely be worth the benefit of offering an equity plan, the vast 
majority of companies would be left to face option two, thus 
eliminating the use of a benefit that is popular with both employers 
and employees.
  Recognizing the need to remedy this matter, for the good of companies 
and workers alike, a bipartisan group of legislators worked to craft 
the bill we have before us today, the Worker Economic Opportunity Act. 
This legislation would exempt employee equity programs from the 
overtime requirements of the Fair Labor Standards Act, just as profit 
sharing and holiday bonus plans are exempted. In addition, the bill 
protects employers who offered employee equity programs prior to the 
date this legislation is enacted.
  This legislation will allow employers to offer the kind of benefits 
which will allow them to attract a quality workforce, while providing 
employees with a benefit they truly want. It is all too rare for 
Congress to come up with a win-win solution to a problem, but in this 
case we certainly have.
  Mr. President, I urge my colleagues to support this important 
legislation.
  Mr. KENNEDY. Mr. President, since its enactment in 1938, the Fair 
Labor Standards Act has played a fundamental role in ensuring a fairer 
standard of living for all American workers. The act created basic 
rights for workers by establishing a federal minimum wage, a 40 hour 
work week and overtime pay for additional hours. It also protects 
children from abusive working conditions and helps ensure that women 
and men receive equal pay. Throughout its existence, the act has been 
indispensable in improving the standard of living for vast numbers of 
Americans.
  The Department of Labor has effectively carried out its 
responsibility to interpret the law with this purpose in mind. Given 
the high value of the act in protecting workers' rights to a fair 
workplace, Congress must remain vigilant to ensure that any changes in 
this important law do not undermine the wage and hour protections 
guaranteed to workers under the act.
  I support the current bill because it helps ensure that employers 
cannot misuse the act as an excuse to exclude rank and file workers 
from the stock option plans, stock appreciation rights, and stock 
purchase plans they provide to higher paid employees.
  I commend Senator Dodd, Senator Jeffords, Senator Enzi, and Senator 
McConnell for developing this narrow, but important, clarification of 
the act. It is a needed modernization of the law, and it arose from 
unique circumstances. I am confident that the Secretary of Labor will 
promulgate regulations interpreting this bill in a way that protects 
the fundamental right of workers to receive overtime pay and not be 
forced to work overtime to participate in stock plans. It is of the 
utmost importance that any change in the act serves to strengthen the 
protections for workers, not weaken them.
  Ms. SNOWE. Mr. President, I rise today to express my support for the 
Worker Economic Employment Opportunity Act. Mr. President, every time 
we turn around it seems that we hear about how strong our nation's 
economy is right now--and how America's workers are daily facing new-
found employment opportunities. We are in a period of almost 
unprecedented prosperity and sustained economic growth. And the bill we 
are voting on today is a direct consequence of that growth.
  It wasn't long ago that benefits such as stock options were available 
only to the upper levels of management. Companies are now offering 
stock options as a way not only to attract, but to retain quality 
employees at all levels. This is a way of providing fairness to our 
nations workers--the ones who manage the daily ins-and-outs of the 
business, the ones who have quite literally built today's economy.
  S. 2323 will clarify that providing stock options will not be counted 
toward overtime pay for hourly employees. The vitality of our economy 
is a tribute to the hard work and creativity of these workers. 
Accordingly, it is unacceptable that the Fair Labor Standards Act would 
be interpreted in a manner that would effectively preclude the offering 
of this valuable benefit to hourly employees who form the backbone of 
American business.
  The Fair Labor Standards Act already exempts some employee benefits 
such as discretionary bonuses, health insurance, and retirement savings 
plans from overtime calculations. We do this to encourage employers to 
provide these critically needed benefits and incentives for their 
employees--stock options should be no different.
  We should not hinder the ability of our nation's workers to 
participate in the economic success of the companies they are helping 
to building. If employers choose to offer profit-sharing options, they 
should not be penalized when calculating over-time wages.
  Mr. President, I support this critical clarification of the Fair 
Labor Standards Act and I urge my colleagues to vote for the bill. 
Thank you, Mr. President, I yield the floor.
  Mr. BENNETT. Mr. President, I rise today to support Senator 
McConnell's stock options legislation, S. 2323, and commend him for his 
hard work on this issue. This legislation allows companies who 
currently offer non-salaried employees a stock options program to 
continue to incentivize their work force without the threat of 
sanctions of the U.S. Department of Labor.
  This is an easy one to support. The United States is unique in the 
world with regard to how our stock options and the wealth generated in 
our companies are shared with those who significantly participate in 
their creation. As in most of the rest of the world, it used to be that 
only our top executives received stock options from their companies. 
Today, many high tech companies offer stock options to all of their 
employees, from the clerk to the CEO. Particularly with regard to an 
individual's retirement needs, stock options are a tremendous financial 
opportunity for all workers and their families. We must do everything 
in our power to preserve these positive wealth- and risk-sharing 
developments in our economy.
  Employees at every level should be allowed to reap the rewards of the 
success of their company. All throughout the United States, it has 
become common place for employees to quit their job and go to work for 
progressive companies who allow them to share in the wealth that their 
corporations generate. I hear repeatedly from industrial companies 
whose compensation structure is often very different, that they are 
losing their most talented and valuable employees to these new, often 
high-tech, corporations. And Mr. President, that kind of competition 
for employees benefits all Americans and it's a positive development.
  The Department of Labor's ill-considered advisory opinion, threatened 
this development, and would have resulted in the cessation of often 
generous stock option plans for non-managerial and non-professional 
employees in many of America's most progressive corporations. It is 
critical that we recognize the importance of these wealth- and risk-
sharing developments to the health of the American economy and 
carefully weigh each new regulation, interpretation, and law before we 
rashly risk the financial health and well-being of the hard-working 
families who have everything to do with the level of productivity our 
economy enjoys.
  Mr. LEVIN. Mr. President, I will vote in favor of the Worker Economic 
Opportunity Act, S. 2323. Stock options have traditionally been 
distributed only to highly salaried executives, used as an incentive to 
promote hard work on behalf of the company. As a company's bottom line 
improves due in part to the executive's efforts, the value of the 
company's stock increases, eventually rewarding the executive when he 
or she ultimately exercises the option and later sells the stock. I 
have long maintained that stock options

[[Page 5355]]

ought be provided to all types of employee--whether hourly or salaried, 
management or clerica--and not just the top brass. That is why I 
introduced the Ending the Double Standards for Stock Options Act last 
Congress, which would have encouraged corporations to adopt plans in 
which a minimum of 50% of all options would go to non-management 
employees. After all, a company's success depends on the efforts of 
more than just its executives.
  I am hopeful that the Worker Economic Opportunity Act will encourage 
the growth of broad-based employee stock option plans in corporate 
America. The Act excludes stock options from overtime pay calculations 
for hourly employees. Current law also excludes benefits like 
discretionary bonuses, employer-provided health insurance, and 
retirement benefits from overtime pay rates. But current law doesn't 
address stock options. Last year, the Department of Labor indicated 
that, without action by Congress, companies would likely have to 
include the value of stock options when figuring an hourly employee's 
overtime pay rate. Corporate America has argued that the administrative 
and financial burdens associated with such inclusion, given a huge 
number of different employees having different amounts of options with 
different exercise dates and strike prices, outweigh the benefits of 
having a broad-based stock option plan.
  This legislation is not inconsistent with my proposal to require the 
reporting of stock options as an expense on a company's financial 
statements, a key part of the Ending the Double Standards for Stock 
Options Act. Therefore, I support the Worker Economic Opportunity Act 
to remove a potential barrier to workers' participation in the 
prosperous American economy they helped create.
  Mr. JEFFORDS. Mr. President, I ask unanimous consent that for the 
next 5 minutes the time be held open, and then at 2:05 p.m. I will 
yield back all the time on the measure, and I ask unanimous consent 
that there be a period for morning business from 2:05 p.m. until 2:30 
p.m., with the time equally divided.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. JEFFORDS. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. JEFFORDS. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. JEFFORDS. Mr. President, what is the order of business?
  The PRESIDING OFFICER. Before the Senate is S. 2323.
  The bill is before the Senate and open to amendment. If there be no 
amendment to be proposed, the question is on the engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed for a third reading and was read 
the third time.
  Mr. JEFFORDS. Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The question is on the passage of the bill.
  The clerk will call the roll.
  The bill clerk called the roll.
  Mr. NICKLES. I announce that the Senator from Delaware (Mr. Roth) and 
the Senator from Maine (Ms. Snowe) are necessarily absent.
  Mr. REID. I announce that the Senator from Massachusetts (Mr. Kerry), 
the Senator from New York (Mr. Moynihan), the Senator from West 
Virginia (Mr. Rockefeller) are necessarily absent.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 95, nays 0, as follows:

                       [Rollcall Vote No. 81 Leg.]

                                YEAS--95

     Abraham
     Akaka
     Allard
     Ashcroft
     Baucus
     Bayh
     Bennett
     Biden
     Bingaman
     Bond
     Boxer
     Breaux
     Brownback
     Bryan
     Bunning
     Burns
     Byrd
     Campbell
     Chafee, L.
     Cleland
     Cochran
     Collins
     Conrad
     Coverdell
     Craig
     Crapo
     Daschle
     DeWine
     Dodd
     Domenici
     Dorgan
     Durbin
     Edwards
     Enzi
     Feingold
     Feinstein
     Fitzgerald
     Frist
     Gorton
     Graham
     Gramm
     Grams
     Grassley
     Gregg
     Hagel
     Harkin
     Hatch
     Helms
     Hollings
     Hutchinson
     Hutchison
     Inhofe
     Inouye
     Jeffords
     Johnson
     Kennedy
     Kerrey
     Kohl
     Kyl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Mikulski
     Murkowski
     Murray
     Nickles
     Reed
     Reid
     Robb
     Roberts
     Santorum
     Sarbanes
     Schumer
     Sessions
     Shelby
     Smith (NH)
     Smith (OR)
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Torricelli
     Voinovich
     Warner
     Wellstone
     Wyden

                             NOT VOTING--5

     Kerry
     Moynihan
     Rockefeller
     Roth
     Snowe
  The bill (S. 2323) was passed, as follows:

                                S. 2323

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Worker Economic Opportunity 
     Act''.

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

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

[[Page 5356]]

     program to comply with section 7(e)(8) of the Fair Labor 
     Standards Act of 1938 (as added by the amendments made by 
     subsection (a)); or
       (3) such program is provided under a collective bargaining 
     agreement that is in effect on the effective date described 
     in subsection (c).
       (e) Regulations.--The Secretary of Labor may promulgate 
     such regulations as may be necessary to carry out the 
     amendments made by this Act.

  Mr. LOTT. I move to reconsider the vote.
  Mr. JEFFORDS. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.

                          ____________________