[Congressional Record (Bound Edition), Volume 150 (2004), Part 12]
[House]
[Pages 16155-16156]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        EXPENSING STOCK OPTIONS

  The SPEAKER pro tempore (Mr. Hensarling). Under a previous order of 
the House, the gentleman from Oregon (Mr. Blumenauer) is recognized for 
5 minutes.
  Mr. BLUMENAUER. Mr. Speaker, this evening I want to reference 
briefly, legislation that we are going to be dealing with tomorrow that 
I think is very important. I have been spending time, as I know a 
number of my colleagues have, questioning the recent proposal from the 
Financial Accounting Standards Board, FASB, about whether or not we are 
going to be expensing stock options.
  This is particularly important for somebody from the State of Oregon 
where technology has become a critical part of our local economy. It is 
the largest export of our State by far, a State originally founded on 
agriculture and timber. Now, technology exports are twice what we have 
in those traditional areas. The wages that are paid are twice the State 
average. They are high-paying, important jobs for a growing part of our 
economy that is increasingly a critical part of a global economy.
  When these proposals came forward, I looked at them closely because, 
sadly, Congress in the past has not always been the most constructive 
partner. When it comes to financial regulations, often our 
participation has hindered rather than helped. I think any objective 
analysis would suggest that congressional interference with what 
happened with the savings and loan scandal probably added billions of 
dollars to the long-term cost to the taxpayer.
  More recently, congressional interference dealing with accounting 
standards probably increased the problems there when we had some of the 
most difficult fallout. We had an opportunity to play a more 
constructive role; I am not certain that we did.
  That is why I look at this carefully. I started by talking to 
business people I know back home who were involved with this process to 
find what impact expensing options would have on their businesses. It 
was clear that were we to be dealing with the expensing of broad-based 
stock option plans, the impact would be negative.
  Now, it is clear that we are not talking about the vast majority of 
stock options that are granted to only a small number of high-level 
employees. Here we have seen expensing take place with little or no 
impact on shareholder value. That is because they are very limited. In 
the area that we are talking about with broad-based stock options where 
the majority of the employees have these options vested, not just the 
top few, it would have a dramatic impact on the balance sheet.
  What it would mean in the long term is that a number of these firms, 
because of the lower values, they would simply stop offering broad-
based stock option programs. That would be a tragedy on several levels. 
One has to do with the fact that broad-based stock option programs 
probably are a counterweight, a check and a balance against abuse. If 
you have a large number of employees who have a stock option program, 
there is less incentive and it is harder to manipulate. Indeed, to the 
best of my knowledge, there has not been a single case of a broad-based 
stock option program that has been one of the problems we have been 
reading about in the papers. The Worldcoms or the Enrons have been 
those stock options that were more limited in nature. So we would lose 
that check and that balance.
  Additionally, we lose an important part of start-up capital. What we 
are finding in the volatile world of technology finance is that there 
are a number of people who are willing to grab the brass ring, they are 
willing to take a chance to forgo salary for stock options, putting, in 
effect, sweat equity into the business on the prospect that it will 
prosper and that they will reap handsome rewards in the future. This 
does not happen all of the time, but it happens frequently enough that 
people are willing to make that type of investment. It has been a 
critical part of the success in getting the talent and getting these 
start-ups off the ground.
  It is particularly important in a small State like Oregon which does 
not have access to capital that we see in other parts of the country 
like Silicon Valley; and as a result, Oregon would be particularly hard 
hit if we were to lose the opportunity for broad-based stock options.

[[Page 16156]]

  Mr. Speaker, I hope that my colleagues carefully examine this 
legislation coming before us tomorrow and look at the impact that 
broad-based stock options have in terms of the entrepreneurial spirit, 
in terms of what it means for the benefit of large numbers of 
employees, and the integrity of stock options themselves. Members 
should look carefully at the problems of valuation for something that 
is in effect equity in the future that is unknown and avoid a problem 
of adopting a new policy that could have a very negative effect on our 
technology industry and small business.

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