[Congressional Record (Bound Edition), Volume 150 (2004), Part 12]
[House]
[Pages 16266-16273]
[From the U.S. Government Publishing Office, www.gpo.gov]




   PROVIDING FOR CONSIDERATION OF H.R. 3574, STOCK OPTION ACCOUNTING 
                               REFORM ACT

  Mr. SESSIONS. Mr. Speaker, by direction of the Committee on Rules, I 
call up House Resolution 725 and ask for its immediate consideration.
  The Clerk read the resolution, as follows:

                              H. Res. 725

       Resolved, That at any time after the adoption of this 
     resolution the Speaker may, pursuant to clause 2(b) of rule 
     XVIII, declare the House resolved into the Committee of the 
     Whole House on the state of the Union for consideration of 
     the bill (H.R. 3574) to require the mandatory expensing of 
     stock options granted to executive officers, and for other 
     purposes. The first reading of the bill shall be dispensed 
     with. All points of order against consideration of the bill 
     are waived. General debate shall be confined to the bill and 
     shall not exceed one hour equally divided and controlled by 
     the chairman and ranking minority member of the Committee on 
     Financial Services. After general debate the bill shall be 
     considered for amendment under the five-minute rule. It shall 
     be in order to consider as an original bill for the purpose 
     of amendment under the five-minute rule the amendment in the 
     nature of a substitute recommended by the Committee on 
     Financial Services now printed in the bill. The committee 
     amendment in the nature of a substitute shall be considered 
     as read. No amendment to the committee amendment in the 
     nature of a substitute shall be in order except those printed 
     in the report of the Committee on Rules accompanying this 
     resolution. Each such amendment may be offered only in the 
     order printed in the report, may be offered only by a Member 
     designated in the report, shall be considered as read, shall 
     be debatable for the time specified in the report equally 
     divided and controlled by the proponent and an opponent, 
     shall not be subject to amendment, and shall not be subject 
     to a demand for division of the question in the House or in 
     the Committee of the Whole. All points of order against such 
     amendments are waived. At the conclusion of consideration of 
     the bill for amendment the Committee shall rise and report 
     the bill to the House with such amendments as may have been 
     adopted. Any Member may demand a separate vote in the House 
     on any amendment adopted in the Committee of the Whole to the 
     bill or to the committee amendment in the nature of a 
     substitute. The previous question shall be considered as 
     ordered on the bill and amendments thereto to final passage 
     without intervening motion except one motion to recommit with 
     or without instructions.

  The SPEAKER pro tempore (Mr. Boozman). The gentleman from Texas (Mr. 
Sessions) is recognized for 1 hour.
  Mr. SESSIONS. Mr. Speaker, for the purpose of debate only, I yield 
the customary 30 minutes to the gentleman from Florida (Mr. Hastings), 
pending which I yield myself such time as I may consume. During 
consideration of this resolution, all time yielded is for the purpose 
of debate only.
  Mr. Speaker, the resolution before us is a well-balanced, structured 
rule that makes in order a manager's amendment and three amendments 
offered by members of the minority, including a minority amendment in 
the nature of a substitute. It provides for 1 hour of general debate, 
equally divided and controlled by the chairman and ranking minority 
member of the Committee on Financial Services.
  The rule waives all points of order against consideration of the bill 
and provides that the amendment in the nature of a substitute 
recommended by the Committee on Financial Services, now printed in the 
bill, shall be considered as an original bill for the purpose of 
amendment, and shall be considered as read.
  It makes in order only those amendments printed in the Committee on 
Rules report accompanying the resolution, and provides that the 
amendments printed in the report may be considered only in the order 
printed in the report, and may only be offered by a Member designated 
in the report. They shall be considered as read, debatable for the time 
specified in the report, equally divided and controlled by the 
proponent and an opponent, not be subject to amendment, and not be 
subject to a demand for a division of the question in the House or in 
the Committee of the Whole.
  Finally, the rules waive all points of order against the amendments 
printed in the report, and provides one motion to recommit with or 
without instructions.
  Mr. Speaker, I rise today in strong support of the rule for H.R. 3574 
as well as the underlying legislation. This bill

[[Page 16267]]

offered by my good friend from Louisiana (Mr. Baker) is carefully 
constructed legislation that will help the United States to retain its 
global dominance in the biotechnology and high-technology sectors while 
creating new jobs, fostering innovation and enhancing productivity. It 
will also empower rank-and-file employees to share in the benefits of 
their hard work by allowing them to earn an equity stake in the 
companies where they work every day to create new products and 
technologies keeping America one step ahead of the rest of the world in 
technological advances and competitiveness.
  H.R. 3574 achieves this worthy goal by bringing some common sense and 
discipline back to the debate over stock options expensing. First, it 
requires the immediate expensing of the stock options granted to the 
CEO and the next four most highly compensated executives of a company, 
consistent with information that must be filed with the SEC.
  Second, it requires that options granted to the five top senior 
executives be valued in such a way that mitigates some of the most 
severe problems with FASB's expected valuation models which are based 
on valuation models for a type of option that differs fundamentally 
from stock options by virtue of being freely traded on open exchanges.
  Third, it exempts certain small businesses from what we call the top 
five rule expensing requirement and delays option expensing for small 
business issuers until 3 years after an initial public offering has 
taken place, allowing a small business' stock to settle down from the 
initial volatility of the initial public offering.
  Fourth, it prohibits the SEC from recognizing any stock option 
expensing accounting standard until the standard recognizes the true 
expense of the stock option on a company's financial statement when the 
option is exercised, expires or is forfeited, and a comprehensive 
economic impact study has been completed by the Secretary of Commerce 
and the Secretary of Labor.

                              {time}  1030

  Finally, this legislation improves corporate governance and 
transparency by requiring the SEC to issue a rule mandating that public 
companies include more detailed information on stock option and stock 
purchase plans in their public periodic reports, such as plain-English 
descriptions that describe the effect that stock options will have on 
earnings per share and the number of outstanding stock options.
  Throughout the 108th Congress, the Republican majority in this House 
has championed and advanced a legislative program full of efforts to 
improve economic growth, corporate governance, and transparency on 
behalf of investors across the United States. Unfortunately, the 
Financial Accounting Standards Board's recent recommendation to mandate 
the expensing of stock option runs contrary to this pro-investor 
agenda. It represents a step in the wrong direction by providing 
investors with less accurate information about public-traded companies 
which will lead investors to a distorted picture of a company's 
financial performance. Even worse, the mandatory expensing proposal 
threatens to destroy broad-based plans and the productivity, 
innovation, and economic growth they currently generate.
  I do not believe that Congress should replace FASB or become suddenly 
interested in micromanaging accounting standards; however, the proposal 
to expense all stock options does not simply have an academic outcome. 
It would have a negative real-world policy impact by destroying the 
American partnership culture of distributing stock options to our 
entire workforce. I believe that allowing such a proposal to go forward 
will choke off job growth, innovation, and entrepreneurship that broad-
based ownership generates; and Congress does have a very real and 
immediate response to prevent this from happening.
  The research behind the economic benefits of stock options support 
this view. As two Rutgers researchers recently concluded `` . . . using 
broad-based options to create a partnership model of the corporation 
will, over the long run, help to make most companies more competitive 
and create more wealth for shareholders.''
  Research also shows that companies with stock-based option plans 
receive a one-time, but permanent, boost to their productivity of about 
4 percent compared to what productivity would have been without 
entrepreneurship and employee ownership. More importantly, total 
shareholder returns go up by an average of about 2 percent. This kind 
of growth is vital to improving our economy and creating jobs; and I 
believe this kind of incentive should be nurtured, not eliminated.
  Data on stock ownership also shows that the 100 largest high-tech 
firms that focus on the Internet, average employees hold approximately 
19 percent of their company's stock, 17 percent accumulated through 
stock options. Top executives hold only 14 percent, demonstrating that 
stock options have empowered rank-and-file employees and low-level 
managers to acquire a stake in their work by accumulating more 
ownership in their companies than their bosses. Ninety-eight of these 
100 companies provide options to them or to most of their employees. In 
Intel's case, for example, 98 percent of the options granted between 
1998 and 2002 went to employees other than the top five executives.
  More than 200 companies from more than 29 States have filed public 
comments opposing mandatory expensing. The NASDAQ, which lists 3,600 
companies, opposes expensing, and opposition to FASB's proposal comes 
not only from the high-tech and biotech sectors but also from other 
areas of our economy, such as from the National Association of 
Manufacturers, the U.S. Chamber, America's Community Bankers, the 
Business Roundtable, and the Association of Financial Professionals.
  I would like to thank the gentleman from Louisiana (Mr. Baker), the 
Committee on Financial Services chairman; the gentleman from Ohio (Mr. 
Oxley); and the gentleman from California (Mr. Dreier), the young 
chairman of the Committee on Rules, for all of their hard work, their 
vision, and leadership on this issue on behalf of American workers and 
investors. I believe this legislation improves the financial 
information available to investing for the public while ensuring that 
rank-and-file employees and middle management can still participate in 
the great American tradition of a broad-based employee ownership of 
their company.
  The choice presented by this legislation is very stark and clear: 
Should Congress allow inside-the-beltway accounting technicians to 
implement standards with severe negative economic consequences, or 
should we develop policies that encourage economic growth, job 
creation, and international competitiveness? I say yes. I believe the 
choice is clear and that Congress should take this opportunity to stand 
up for American workers and business. I encourage all of my colleagues 
to support this rule and the underlying legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. HASTINGS of Florida. Mr. Speaker, I yield myself such time as I 
may consume.
  I thank the gentleman from Texas (Mr. Sessions) for yielding me this 
time.
  Mr. Speaker, while I would prefer that this be an open rule, I rise 
today in support of the rule, as it makes in order those amendments 
which were submitted yesterday evening during the Committee on Rules 
hearing.
  I note that this is the 149th rule that this body has considered in 
the 108th Congress. Of those 149 rules, 18 have been procedural. Of the 
remaining 131 rules, 106, or more than 83 percent, have been closed or 
restricted. One can only hope that the majority will use this rule as 
the template for future rules.
  As my colleague from the majority pointed out, the underlying 
legislation blocks the implementation of new accounting standards 
recently proposed by the Financial Accounting Standards Board. These 
new standards would require companies to deduct from their profits the 
value of the stock options

[[Page 16268]]

they issue to employees and executives.
  Supporters of the Stock Option Accounting Reform Act will note that 
their bill includes a compromise, requiring the inclusion of stock 
options afforded to a company's top five executives in that company's 
profits. The Wall Street Journal, however, has noted that such 
disclosure would not adequately reflect a company's true profits. Top 
executives of companies which offer stock options to their employees 
typically only receive 2 percent of the options that are issued.
  Another study found that in the year 2003, only 18 percent of the 
options provided by the S&P 500 companies went to the top five 
executives. The standard included in the underlying legislation 
potentially leaves anywhere between 82 and 98 percent of a company's 
stock option expenses hidden from the public. This failure to disclose 
runs the grave risk of inflating a company's profits and misleading 
investors.
  For example, if this bill were law in 2003, Intel would have deducted 
$3.5 million from its 2003 profits, although it actually doled out more 
than $990 million in options.
  Investors have a right to know the true profits and total expenses of 
the companies in which they invest. The underlying legislation fails 
them, in my judgment, in this arena.
  In addition to my concerns about the policy of the underlying 
legislation, I am equally concerned about the implications of Congress 
overriding the rulings of the Financial Accounting Standards Board, an 
independent governing authority. I echo the comments that have already 
been made by the chairman of the Senate's Banking, Housing and Urban 
Affairs Committee, who has noted that Congress has no business 
undermining the Accounting Standards Board.
  Independent boards, such as FASB and the Securities Exchange 
Commission, exist to ensure the veracity of the financial services 
industry. Efforts on the part of Congress to undermine their decisions 
compromise the integrity and reliability of the industry. When 
congressional pressure, political ideology, or legislative fixes play a 
role in the decisions of boards such as the FASB and SEC, these boards 
will cease to be independent.
  The gentleman from Pennsylvania (Mr. Kanjorski), ranking Democrat of 
the Capital Markets, Insurance and Government Sponsored Enterprises 
Subcommittee, as well as the gentleman from Delaware (Mr. Castle) will 
offer an amendment in the nature of a substitute that I intend to 
support. Their substitute recognizes the roles of the FASB and SEC as 
independent boards, and I urge my colleagues to support it.
  Mr. Speaker, Congress has a role to play to regulate and observe the 
financial services industry. The underlying legislation, however, runs 
the risk of crossing the line that currently exists. I urge my 
colleagues to strongly consider the implications of the underlying 
legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. SESSIONS. Mr. Speaker, I yield myself such time as I may consume.
  What this legislation does do is run the risk of encouraging 
entrepreneurs and companies and people to work harder, produce better 
products for this country, to do the right thing for the investor, but 
mostly it runs the risk of making sure that the person who would get 
that stock option is able to then take advantage of that and better 
their life and to better the life of America by making sure that people 
have money in their pockets to where they can make their own decisions.
  Mr. Speaker, I yield such time as he may consume to the gentleman 
from California (Mr. Dreier), chairman of the Committee on Rules.
  Mr. DREIER. Mr. Speaker, I thank the gentleman from Texas (Mr. 
Sessions), my friend, for his fine management of this rule and his 
commitment to the structure which will encourage innovation and 
creativity.
  We are on the verge of yet another very important bipartisan victory 
for this institution and, most important, for the American people.
  Mr. Speaker, I would like to begin my comments by extending my 
appreciation to a couple of Californians on the other side of the aisle 
who have played a very important role in getting us to the point where 
we are. First and foremost, the gentlewoman from California (Ms. 
Eshoo), my great friend with whom I have been privileged to work on 
this issue for literally years now as we have been trying to tackle and 
deal with this very important challenge. And also I would like to 
praise the gentlewoman from California (Ms. Pelosi), our minority 
leader, my fellow Californian who has joined as a cosponsor of this 
legislation and understands how important it is not only for our State 
of California and for the area that is represented by the gentlewoman 
from California (Ms. Eshoo) and the gentlewoman from California (Ms. 
Pelosi), but for the overall concept of encouraging innovation and 
creativity. And I do know that we have a wide range of other Members on 
the other side of the aisle who have followed the lead of the 
gentlewoman from California (Ms. Eshoo) and the gentlewoman from 
California (Ms. Pelosi) on this issue.
  I also want to say, Mr. Speaker, that on our side of the aisle there 
have been a number of people who have been great champions in this. 
First of all, I want to express appreciation to the gentleman from 
Illinois (Speaker Hastert) and the gentleman from Texas (Mr. DeLay), 
majority leader, for working closely with me and ensuring that we would 
have an opportunity to bring this measure to the floor; also to the two 
committee chairmen who have been very involved in this.
  The prime committee of jurisdiction is the Committee on Financial 
Services. I would like to congratulate the gentleman from Ohio (Mr. 
Oxley) and the gentleman from Louisiana (Mr. Baker) and other members 
of that committee, including the gentleman from California (Mr. Royce) 
and the gentleman from California (Mr. Ose) and the gentleman from 
Arizona (Mr. Shadegg), who have worked very hard on this issue. And 
also I would like to express appreciation to the gentleman from Texas 
(Mr. Barton), who has just recently become the chairman of the 
Committee on Energy and Commerce and is doing a great job and joins 
with us in support of this important legislation.
  I should also say that there are a number of staff people who have 
been very involved as well, Mr. Speaker. I see a number of them on the 
floor, but I do want to specifically mention the staff director of the 
Committee on Rules, Mr. Pitts; and from the Speaker's office, Seth 
Webb; and from the majority leader's office, Brett Shogren, who worked 
very hard with us in making sure that we got to the point where we are 
today, because this has been a difficult and a real challenge for us, 
but it is the right thing for us to do.
  Mr. Speaker, I want to state for the record that I am an ardent 
opponent of mandatory stock option expensing.

                              {time}  1045

  With all due respect to the wonderful people who are supporting the 
Financial Accounting Standards Board's expensing proposal, the notion 
that stock options are an expense is absolutely absurd. You do not have 
to be an accountant to clearly understand that stock options result in 
no cash outflows from a company, nor do they add to its financial 
liabilities. But I recognize that in the wake of the corporate 
accounting scandals, and I know many people are going to be talking 
about that as we begin debate on this issue, a whole new environment 
does now exist.
  In this arena, those who have long opposed the use of employee stock 
options, and recognize, there are many people, Mr. Speaker, who have 
long been opponents of the utilization of employee stock options, they 
have been able to artificially link the public's legitimate hunger to 
rein in corporate abuse with their desire to kill the use of employee 
stock options.
  Let me say that again. We all are outraged at the corporate abuse 
that we have seen over the past few years, but it is, to me, very 
troubling that a number of people who are opponents of the utilization 
of employee stock options are using that shared concern

[[Page 16269]]

that we all have to try and limit the opportunity for stock options to 
exist. In effect, they are trying to use an accounting sleight of hand 
to eliminate stock options in the name of investor interests and open 
corporate reporting.
  If stock option opponents succeed, innovation and ingenuity, the 
indisputable drivers of our 21st century economy, will be 
unquestionably undermined. Millions and millions of rank and file 
employees will lose their ability to hold stakes in their company's 
future successes. A troublesome precedent will have been set in the 
promulgation of accounting standards.
  Expensing proponents have successfully used what is supposed to be a 
technical, a technical, determination of an accounting standard to 
obtain what is really a corporate governance policy decision. That is 
why I want to applaud, as I said earlier, the gentleman from Louisiana 
(Chairman Baker) for crafting a bill that achieves a critical balance.
  H.R. 3574, the Stock Options Accounting Reform Act, while 
implementing stock option expensing for, as has been pointed out by my 
colleague the gentleman from Texas (Mr. Sessions), for the company's 
top five executives, does so in a way that will preserve the continued 
viability of broad-based employee stock option plans. It is one of two 
critical reasons why I am a proud cosponsor of this Baker-Eshoo bill.
  It is that latter objective, giving workers on the lower rungs of the 
corporate ladder the opportunity to own a piece of the company pie, 
that is so important to the health and growth of our ingenuity-driven 
economy.
  Remember, it is the estimated 14 million workers, 90 percent of whom 
hold nonmanagement positions, who would be immediately affected by a 
mandatory expensing standard. These are the rank-and-file workers, the 
Americans who have invested their sweat equity in the hope, not the 
guarantee, but the hope that their investment will provide future 
retirement funds, college tuition or a housing downpayment.
  I am reminded how my friend, the gentlewoman from California (Ms. 
Eshoo), and I joined in getting a wide range of employees, from Sun, 
Cisco, Intel and other companies, who have talked about the fact that 
their opportunity to own a home, to pay for their college education for 
their children, has come from the existence of these options.
  Many argue that expensing will prevent CEOs from abusing stock 
options. That is simply untrue, Mr. Speaker. Illegal accounting tactics 
are just that, they are illegal. An accounting standard is not going to 
stop an individual who is intent on breaking the law. Instead, FASB's 
proposed accounting standard will eliminate what has been a valuable 
employee incentive tool. That will not help the top managers. Similar 
to what traditional companies, like Coca-Cola do now, we know that 
executives will continue to receive stock options even with mandatory 
expensing.
  Speaking more broadly, if high-growth industries lose their 
flexibility to use broad-based stock options, we will all lose. Stock 
options align the employee interests with the company interest, and 
that produces a motivated worker. Nowhere has that formula proven more 
effective than in the technology sector of our economy, particularly in 
California's Silicon Valley.
  No matter what area of technology you look at, you will find that the 
common thread to a company's success has been employee stock options. 
Without that flexibility, we would lose a key motivator for would-be 
entrepreneurs and existing innovative companies to take risks and 
transform new ideas into industry. New industries create new jobs, 
higher wages and increased standards of living.
  That brings me to my other primary reason for supporting this 
legislation, and that is the investor. Expensing proponents cite time 
and time again the urgency of giving investors accurate information 
about a company's use of stock options. I absolutely agree with that 
goal, Mr. Speaker. Investors need meaningful and transparent 
information. However, the real investor class issue here is a corporate 
reporting issue, not an accounting issue. Options do not cost a company 
money, but they do have an impact on share value.
  We must stand on the side of investors and ensure that they have 
clear and accurate information about how stock options dilute the value 
of their shares. I want to commend the gentleman from Ohio (Chairman 
Oxley) for adding provisions to this measure that will do just that. 
His language will expand required disclosures to include plain English 
discussion of the dilutive effects of stock option plans, increased 
comparability information, the number of outstanding stock options and 
the estimated number of outstanding stock options that will vest in 
each year.
  Many of us, Mr. Speaker, may have been following this issue closely 
over the past few years. Actually, I know a number of our colleagues, 
frankly, have not been following this issue in great detail over the 
last couple of years, so it is for that reason I think it is important 
to explain why stock option expensing will do everything but bring 
clarity and accuracy to corporate financial statements.
  The inability to correctly value options that have not been 
exercised, may never be exercised and are not tradable in open markets 
means investors will necessarily get wrong information from expensing. 
Why? Because no one has been able to figure out how to value these 
options. That, in and of itself, should make anyone question FASB's 
fundamental premise that stock options are a corporate expense.
  FASB set up an options valuation group earlier this year to come up 
with one single method, but the group was unable to do so. FASB now is 
preparing to recommend allowing companies to choose from two different 
valuation models in its pending proposal.
  Mr. Speaker, Professor William Sahlman from Harvard, commenting on 
the Black-Scholes model said, ``If anything, expensing options may lead 
to an even more distorted picture of a company's economic position and 
cash flows than financial statements currently paint.''
  One of the inventors of the other model, the binomial method, 
recently said, ``I was one of the inventors of the board-proposed 
model, and I say: Don't use it. It doesn't work.''
  Mr. Speaker, I want to close my remarks by doing what I did when the 
gentlewoman from California (Ms. Eshoo) and I testified before the 
Committee on Financial Services subcommittee on this issue by taking us 
back nearly two millennia to around 100 A.D.
  During that time, a brilliant mathematician, astronomer and 
geographer named Claudius Ptolemy, wrote a 13-volume treatise entitled 
The Mathematical Compilation. It is also known as the Almagest. It 
explained the movements of the sun, moon and five planets around the 
center of the Earth.
  For nearly 15 centuries, his work was the leading scientific 
explanation of that ``truth.'' And based on the fact that the Earth was 
at the center of the universe, scientists of that time developed very 
complicated and precise answers to all types of questions, such as why 
the visible planets take certain paths around the sky.
  Mr. Speaker, geniuses like Nicolaus Copernicus improved on the 
Ptolemaic work by proposing that the sun and Earth revolved around a 
point near the sun. And Tycho Brahe explained how the planets revolved 
around the sun, and the sun and planets revolved around the Earth. Even 
Galileo did not break completely from the intellectual view 
underpinning the 15 centuries of Ptolemy's astronomy.
  What does Ptolemy have to do with stock options, expensing and the 
FASB? Mr. Speaker, the accountants at FASB, good people that they are, 
are determined to fit the entire universe around a world view that in 
the end is flawed as much as Ptolemy's universe was. Their view is that 
everything must be able to be scored and placed on a corporate balance 
sheet. Well, the Earth is not the center of the universe, and 
everything does not belong on a balance sheet.
  That is not to say that given enough hard thinking, a smart person 
could

[[Page 16270]]

not figure out a way to put everything on a balance sheet. Utterly 
brilliant people figured out a way to explain with amazing precision 
how and why the sun and planets revolved around the Earth. You can 
explain just about anything with mathematical precision, but that does 
not make it true.
  FASB is not populated by Ptolemy, Copernicus, Brahe or Galileo, and 
you do not have to be a Johannes Kepler to know that FASB is just plain 
wrong when it comes to stock option expensing.
  Mr. Speaker, the Stock Options Accounting Reform Act is one of the 
most important proeconomic growth, pro-
employee ownership bills that we will consider in this Congress. Unlike 
the FASB, and I do recognize their independence, we as elected 
officials have an obligation to American workers and investors to 
preserve an environment that allows entrepreneurs to grow our economy. 
A potential change in accounting treatment may be arcane to some, but 
it is in the real world that the negative impact of mandatory expensing 
will hurt the risk-takers who are creating jobs and wealth in this 
country.
  Mr. Speaker, we have made a rule in order that will allow for 
consideration of all the amendments that have been submitted to us, but 
I want to urge my colleagues to vote in opposition to those amendments 
that could in any way undermine the basis of this very important 
legislation.
  So I urge my colleagues to support the rule and, of course, 
enthusiastically support this measure as it comes to passage, and enjoy 
a strong bipartisan victory at the end of the day.
  Mr. HASTINGS of Florida. Mr. Speaker, I yield myself such time as I 
may consume.
  Mr. Speaker, the chairman has certainly given us an enlightened view 
of the universe. I want to remind him that the Vatican did not agree 
with much of what he talked about. But Ptolemy, I did not know he was 
going to wind up being here with us on this important subject.
  Mr. Speaker, I yield 3 minutes to the gentleman from California (Mr. 
Stark), a good friend of all of us, to enlighten us perhaps in yet 
another of the universal aspects of this business.
  Mr. STARK. Mr. Speaker, I thank the gentleman for yielding me time.
  I really meant to talk about celebrating the 35th anniversary of 
Apollo 11, but I can see that my distinguished colleague from 
California was there with me. I thought we were really talking about 
accounting, and we are talking about H.R. 3574, which is appropriate, 
because it is sheer lunacy.
  While our soldiers are fighting overseas, our children are crying out 
for better schools, 45 million people have no health insurance, we have 
set the goal today of ``Let's help the rich get richer.'' Yes, sir, Mr. 
Speaker, let us give more money to the millionaires.
  Frankly speaking, do you know how high gas prices have gone? Do you 
know how much jet fuel costs? Do you know how much private jet pilots 
earn? We must help those people so they do not have to go from $4,000 
to $5,000 to fly those little things. And that is what this bill today 
is doing.
  I am glad to see we are helping. Why? Right now, corporations can 
deduct stock options for tax purposes, ha-ha, and not pay the income 
tax, but they do not have to report those expenses to shareholders on 
their SEC financial statements. That is what I call sleight of hand.
  You cannot have it both ways. If you want to not deduct options, then 
do not take them off your income tax. It makes some sense.
  This accounting loophole was encouraged by companies like Enron and 
Cisco to artificially inflate the value of their company while 
deceiving their investors and evading corporate income tax. It is much 
simpler than moving to Bermuda. Even Alan Greenspan has criticized this 
practice.
  To fix this problem, the FASB board has drafted a rule requiring that 
we expense the options. It makes some sense. But rather than following 
FASB, a board made up of professional accountants, I might add, to 
implement a sensible rule, why, Congress has decided to use their 
accounting expertise.
  I look around the room at my fellow Congressmen, and wonder how many 
of them have taken the accounting course I took?

                              {time}  1100

  And if they did, they all know that debits are in the column next to 
the windows, except as one looks around this Chamber, there are windows 
on four sides. No wonder we are confused.
  So let the FASB rule be damned; we are going to set some rules of our 
own about accounting around here. Do my colleagues know what? They 
anticipate that there will be criticism that lets rich corporate 
executives off the hook, so they are going to limit it to the top five 
executives. I say to my colleagues, nice try, but as Warren Buffett 
points out, that is like saying in a large company which gives everyone 
a bonus, only five bonuses have to be expensed.
  This bill requires companies to assume also that stocks have zero 
volatility. Stocks with zero volatility? Now, that does not pass the 
laugh test. Ask Martha Stewart about stocks with no volatility. She 
knows something about stock volatility. I suspect Ken Lay could tell us 
that it is a real phenomenon that we cannot do away with by 
legislation.
  So the bill perpetuates the Bush administration's failed economic 
policies, while simultaneously lining the pockets of their fat cat 
friends. And the sponsors of this bill should be proud. It increases 
the deficit, it falsifies corporate earnings, and it serves the 
millionaires in this country well.
  Mr. SESSIONS. Mr. Speaker, I would like to notify my colleague, the 
gentleman from Florida (Mr. Hastings), that at this time the majority 
does not have additional speakers. I believe I have approximately 5 
minutes remaining, and I would encourage him to utilize that time that 
is necessary for him to close, and then I will do so myself.
  Mr. HASTINGS of Florida. Mr. Speaker, just so that we can accurately 
record it so that I may dispense time on our side, how much time 
remains for both sides?
  The SPEAKER pro tempore (Mr. Bonilla). The gentleman from Florida 
(Mr. Hastings) has 21\1/2\ minutes remaining; the gentleman from Texas 
(Mr. Sessions) has 5 minutes remaining.
  Mr. HASTINGS of Florida. Mr. Speaker, I am pleased to yield 3 minutes 
to the gentlewoman from California (Ms. Eshoo), my good friend, who is 
an original cosponsor of this legislation; and she and I came to 
Congress together, and she has worked actively. The first bill that she 
introduced was a measure dealing with what we are discussing today.
  Ms. ESHOO. Mr. Speaker, I thank the gentleman from Florida (Mr. 
Hastings), my good friend and classmate, for yielding me this time.
  I am very proud to be the Democratic lead sponsor of the Stock Option 
Accounting Reform Act, and I want to thank the gentleman from 
California (Chairman Dreier) for his partnership and his hard work, and 
the gentleman from Louisiana (Chairman Baker), as well as colleagues 
from both sides of the aisle for the work that they have done to bring 
this issue forward so that we can take this up on the floor of the 
House today.
  The Financial Accounting Standards Board, FASB, has sought for years 
to force public companies to expense stock options from their earnings, 
and Congress has consistently turned away these efforts. This is not 
the first time. I hope it will be the last time, but it is not the 
first time.
  Now, the board has seized on the recent corporate scandals to push 
this controversial proposal through. But supporters of the FASB rule, 
including FASB itself, are unable to identify a single instance where 
the accounting treatment of broad-based stock option plans for rank-
and-file employees has contributed to corporate misconduct or 
shareholder fraud. Stock options are already fully disclosed in 
corporate financial treatments. They are not, however, deducted from 
earnings.
  The reason most companies reject the expensing of stock options is 
that their actual cost is highly speculative

[[Page 16271]]

and extremely difficult to measure. Options have a direct impact on the 
dilution of shareholder value, but the actual cost to the company is 
uncertain. Furthermore, valuation of employee options is highly 
inaccurate, and FASB has yet to come up with an acceptable means for 
estimating their value.
  That is why this legislation is needed. It is needed to prevent 
FASB's new rules from taking effect later this year, causing 
substantial disarray in corporate accounting. Implementation of these 
new accounting rules would have a disastrous impact on American 
companies and, most importantly, American workers. If companies are 
forced to expense stock options, most likely they will drop broad-based 
stock option plans because of the prospect of taking a huge and 
misleading charge against their bottom line.
  So while corporate executives will undoubtedly continue to receive 
lucrative compensation, rank-and-file employees will lose the benefits 
of these employee ownership programs.
  Congress, I believe, has the responsibility to ensure that a major 
change in corporate accounting is appropriate and that it is 
implemented prudently. Why? Because impacts on our national economy are 
the business of the Congress. We would not have stepped in before, and 
I would not be offering this legislation were this not the case. FASB 
has acknowledged that to us, that they are in charge of accounting 
rules; but they do not take into consideration the economic impacts.
  So I urge my colleagues to look at this carefully. There are many, 
many complications to this. More than anything else, this is not for 
corporate executives. This is for rank-and-file employees who take a 
risk in start-up companies and say that when the risk is realized in a 
positive way that everyone wins. Let us protect that, especially at a 
time where our national economy needs to protect something that we know 
works.
  Mr. HASTINGS of Florida. Mr. Speaker, at this time I am pleased to 
yield 2\1/2\ minutes to my good friend, the gentleman from Oregon (Mr. 
Blumenauer).
  Mr. BLUMENAUER. Mr. Speaker, I appreciate the gentleman's courtesy in 
yielding me this time, and I rise in strong support of the sentiments 
just expressed by my good friend, the gentlewoman from California (Ms. 
Eshoo).
  This is about fundamental policy, not just accounting standards. I am 
as reluctant as any to have Congress meddle in regulatory affairs, but 
this legislation is most decidedly not about helping rich people. Enron 
did not have a broad-based stock option program. Indeed, the evidence 
is those companies that have broad-based stock option programs have a 
countervailing force that militates against this sort of abuse.
  I personally am not worried about the investor class. They hire smart 
people to check what is already a part of company financial records. 
The mutual funds, the pension funds, the venture capitalists all know 
the status. Expensing would have a negative impact on the value of 
these companies who use broad-based stock options, and retroactive 
application would make it even worse. It would make it much less likely 
that we are going to have these programs in the future, and many 
current programs will be eliminated. This is a fundamental issue of 
policy that Congress can and should be involved with.
  I take modest disagreement with some sentiments that were expressed 
here earlier. I do not know anybody who is against stock options per 
se. I do not think Warren Buffett is a part of a conspiracy to 
eliminate stock options, and there are legitimate issues about how they 
are taxed.
  But my concern is making sure that we have an entrepreneurial tool 
that is available for start-up enterprises, particularly in high tech, 
where people can invest their sweat equity, that are broad based, and 
help not just the top of the financial heap. The top executives are 
going to be taken care of one way or another. The enactment of this 
standard is simply going to take it away from the vast majority of 
employees in the broad-based program.
  I think it is important for us to maintain this tool. It is currently 
used by a minority of companies with no evidence of abuse. Strong 
support here from Congress in being able to keep this going is going to 
be good for the economy, it is going to be good for these 
entrepreneurial efforts; and, indeed, the extent to which we transition 
to broad-based stock options, I think it will be a tool against abuse 
in the future.
  Mr. HASTINGS of Florida. Mr. Speaker, I am pleased to yield 3\1/2\ 
minutes to the gentlewoman from New York (Mrs. Maloney), my good 
friend, who represents the financial district of this country.
  Mrs. MALONEY. Mr. Speaker, I thank the gentleman for yielding me this 
time.
  I am pleased that the Committee on Rules has decided to allow my 
amendment to protect investors by making companies show their true 
earnings in their public filings, and I am pleased that they have 
placed this in order. This amendment keeps whole the authority of the 
SEC to regulate the contents of public filings by companies issuing 
stock. The SEC has had that authority since its inception, and for good 
reason, to protect investors, to protect stockholders, and to protect 
the safety and soundness of our financial institutions.
  This bill would remove the SEC's existing power to regulate whether 
stock options are shown as an expense. Simply put, a stock option is 
either an expense, or it is not an expense. My amendment preserves 
present law and the policy that Congress has followed since 1934, of 
letting an independent agency make the rules about what information 
companies must tell their investors and their filings. It preserves 
transparency to the investing public.
  Accounting standards, like interest rates, should not be set by 
Congress, although we do have oversight. A host of the biggest names in 
financial policy have spoken out against this bill and in support of my 
amendment and in favor of preserving independent standard-setting for 
corporate accounting: Alan Greenspan, Arthur Levitt, William Donaldson, 
Warren Buffett, John Bogle; and the list goes on and on. Many 
editorials across this country have come out against the bill that is 
before us today. I will include the statements of these individuals and 
the editorials in the Record.
  Expensing is the overwhelming view of financial experts, even before 
Enron. A 2001 survey of over 18,000 analysts and portfolio managers 
showed that 83 percent agreed that stock options must be expensed. None 
of these authorities stand to make a dime off expensing. They are 
standing up for the right thing to do for investors and shareholders in 
our country.
  On the other hand, we have the corporate views of Cisco, Intel, and 
others who will lose, at least on paper, a cool billion-plus each if 
they have to show their options as expenses. Now, whose interests do 
they have at heart? Is it the investors? I do not think so.
  It is a tragedy that these few corporations have set up a false war 
between investors and employees. Nothing in the FASB standard prevents 
expensing. Over 600 companies in America voluntarily expense. These 
companies tell the truth about the expense of stock options, but still 
give them to employees. Other companies can do the same. Is showing the 
true cost of stock options so damaging to these companies that no one 
should know how much they are spending for them?
  I have received several letters from employees. They say that they 
need these options because they do not have pension plans or health 
care plans; and I ask my colleagues, is this what we want to encourage? 
Employees deserve pensions and health care. Hidden stock options should 
not be used as a substitute.
  Expensing stock options is the right thing to do for both investors 
and employees; and as Arthur Levitt said, finally and plainly put, this 
bill hurts investors and the financial markets of America.
  I urge a ``no'' vote on this bill and a ``yes'' on the amendment.

[[Page 16272]]


  Mr. HASTINGS of Florida. Mr. Speaker, I yield 3 minutes to the 
gentlewoman from Oregon (Ms. Hooley), my good friend.

                              {time}  1115

  Ms. HOOLEY of Oregon. Mr. Speaker, I thank the gentleman from Florida 
for yielding me this time.
  I rise in support of the legislation before us today. I would like to 
give special thanks to the gentlewoman from California (Ms. Eshoo) for 
working on this important legislation.
  The legislation before us today is in response to FASB's proposed 
rules that would require the expensing of all stock options. First, let 
me quickly touch on the specific issue of accounting accuracy, which 
proponents of the FASB rule argue is a primary motivation. They claim 
that expensing options is right because in the accounting world, it is 
the accurate way to do things. Well, this is wrong in two ways.
  First, it is impossible to accurately value the expense of stock 
options. That fact is indisputable.
  Second, options are already reflected in the earnings per share 
calculation with before-and-after dilution. Requiring expensing options 
would be double-charging their issuance, once as an expense and the 
second time as a dilution.
  In a broader sense and somewhat separate from the accounting issue is 
the larger problem with FASB's proposal, and that is why, by all 
appearances, they have given no consideration toward the economic 
consequences. Their proposal would seriously jeopardize the health of 
the American economy. The issuance of stock options has allowed small 
start-up companies to present the motivation, an essential tool for new 
recruits. These new employees are literally given a piece of the 
company, and consequently, they have a vested interest in the success 
of that company.
  The stock options have helped new businesses. They have helped start-
up companies. In fact, that is one of the ways that really makes those 
companies go.
  People have accused supporters of this legislation as being in the 
pocket of huge technology companies. Well, nothing could be further 
from the truth. The fact is that when I talk to companies at home about 
stock options, it is the small companies, it is the start-up companies, 
it is the innovators that say we would be lost without this.
  And it makes sense. Large companies already have the capital to 
recruit the best and the brightest, and they do not really need to 
offer stock options as an incentive, but the small companies, the new 
start-ups who are struggling to meet the day-to-day costs, they are the 
ones to rely on the prospect of future successes of the company. That 
is the heart of this debate.
  Preserving stock options is preserving an optimism in the growth of 
our economy and our Nation. Stock options we know have increased 
productivity. We know they have increased innovativeness, and they were 
a large part of the emergence of the new economy in the 1990s. When we 
are striving to have an economic recovery, the last thing we need is a 
proposal to stifle the growth, productivity and the innovativeness that 
stock options have provided. This bill is a vehicle to protect the 
safety of the American economy, and it is vital that we support it 
today.
  Mr. HASTINGS of Florida. Mr. Speaker, I yield 2\1/2\ minutes to the 
distinguished gentleman from Massachusetts (Mr. Markey).
  Mr. MARKEY. Mr. Speaker, I thank the gentleman for yielding me this 
time.
  The problem with this bill is that it has so many flaws in it that it 
just would not work in the real world. How can there possibly be an 
argument made that the four highest paid executives, plus the chief 
executive of a company, their stock options would be counted one way 
and all the other stock options of the other employees would be counted 
another way inside of the same company? It makes no sense at all.
  But the biggest detour into accounting Never-Never Land that the bill 
provides is when a company is calculating the expense of the options to 
these five executives, it must assume that the stock price has zero 
volatility. That is right, zero.
  So let me read the language, which appears on page 4 of the bill. 
``To the extent that an option pricing model is used to determine the 
fair value of an option, the assumed volatility of the underlying stock 
shall be zero.'' It will be zero. Volatility for stocks is zero. We are 
legislating that here on the floor of Congress today.
  Now, there are lots of assumptions, which this Congress could 
actually begin to write right into the law, and I am sure the 
Republicans would like to do that. When it comes to the budget, the 
Republican Party is a great proponent of dynamic scoring as a way of 
getting the numbers to come out right. Here is an alternative, static 
scoring, no volatility whatsoever. Let us just legislate that.
  How about the cost of the war in Iraq? We could assume that the 
volatility is zero. It would be zero, after all, if we simply assumed 
that we have already won the war, transformed Iraq into a pluralistic, 
secular, capitalistic democracy. So easy, we just declare the war won 
and we go home. No messy occupation, no truck bombs, no terrorism. Just 
hold a big parade to celebrate.
  Hey, I have got an idea for the banner too. It could just read, 
``Mission Accomplished.'' No volatility in Iraq. Let us just legislate 
that out here on the floor as well.
  Al Qaeda, pay no attention to Al-Jazeera broadcast. We just assume 
that terrorism has ended as well. We will just legislate. No volatility 
in terrorism.
  And while we are at it, let us just legislate that if we have a 
couple of hot fudge sundaes every day, it will have no impact on our 
weight, no volatility in our weight. We will just legislate it down 
here. Let us just legislate.
  That is what they are saying today, that stocks have no volatility. 
Tell them who tune into CNBC and Bloomberg all day long with their eyes 
glued to the set, no volatility.
  What are we doing here in Congress? We have no right, we have no 
right, ladies and gentlemen, in making that assumption for all of the 
investors in our country.
  Mr. HASTINGS of Florida. Mr. Speaker, I yield 2 minutes and 15 
seconds to the gentleman from New York (Mr. Meeks).
  Mr. MEEKS of New York. Mr. Speaker, I rise today in support of the 
rule and in support of the Stock Option Accounting Reform Act. This 
bipartisan legislation has widespread support on both sides of the 
aisle. This bill is all about maintaining the leadership role of the 
United States in emerging industries such as high technology and 
biotechnology and by recruiting and sustaining the best available 
workforce. This bill is about giving employees an incentive to be the 
best that they can be and encouraging small companies, not stifling 
them.
  Mr. Speaker, this legislation ensures that the rank-and-file 
employees who have benefited from broad-based stock option plans in the 
past can continue to reap these benefits in the future. Broad-based 
employee stock option plans benefit middle-class and younger workers 
who have taken a chance on smaller companies right out of school with 
the opportunity and promise to grow with that company and share in its 
success professionally and financially.
  In my congressional district, companies such as American Airlines, 
Verizon, Time Warner and Jet Blue are just a few of the companies that 
provide stock options as a benefit to their employees. And throughout 
this debate, some have claimed that stock option benefits only benefit 
senior corporate executives. The facts say otherwise; 14.6 million 
American workers held stock options in 2002, representing 13 percent of 
private sector workers nationwide. Eighty-five percent of stock options 
are held by nonmanagement workers, and one out of eight employee 
option-holders is either a union member or married to someone who is. 
And 39 percent of the employees earning stock options earn only $30,000 
to $75,000 a year.

[[Page 16273]]

  Meanwhile, this bill is also about combating abuse in executive 
compensation. The bill immediately requires the expensing of all stock 
options given to the top five executives of a company, but exempts 
small companies from this requirement for 3 years so that they do not 
get penalized disproportionately, a balanced and fair compromise.
  There are undoubtedly reservations about having Congress enact 
accounting laws, and I share these reservations and counsel that we 
should be prudent in our approach. However, the granting of stock 
options to certain employees in the early and growth stages of a 
company, particularly in a technological industry, has been a critical 
component and the success of many technological companies and 
technological innovations that many Americans utilize, including the 
devices we carry around with us in the House.
  Mr. Speaker, this is bipartisan legislation which reflects the kinds 
of issues that this Congress needs to address to jump-start our economy 
with quality jobs for all of American workers. I urge my colleagues to 
join me in voting for this bill.
  Mr. HASTINGS of Florida. Mr. Speaker, I yield 2 minutes and 15 
seconds to the gentleman from Florida (Mr. Stearns).
  Mr. STEARNS. Mr. Speaker, I thank my colleague from Florida for 
yielding me the time.
  Mr. Speaker, I had an amendment to the Committee on Rules that 
unfortunately did not get a part in this debate process. My amendment 
to the bill of the gentleman from Louisiana (Mr. Baker) would allow 
companies that voluntarily expense all employees' options to continue 
doing so. I contend, and I submit, that the original bill, H.R. 3574, 
would bar them from that practice.
  At a recent hearing I held as chairman of the Committee on Energy and 
Commerce Subcommittee on Commerce, Trade, and Consumer Protection with 
jurisdiction over FASB, the Financial Accounting Standards Board, the 
chairman of FASB said that 576 companies are currently expensing 
options. Think of that, 576 are expensing options, and as it now 
stands, H.R. 3574 would prevent these companies from continuing to 
voluntarily expense stock options.
  Now, my amendment would correct that, and I believe congressional 
interference into FASB rule-making sets a dangerous standard and a 
precedent and that the process should be left to independent experts. 
And as the bill now stands, that is not true. We hope we can correct 
it, but my amendment was not included as part of this debate.
  And I filed this amendment in the Committee on Rules to correct it, 
and subsequent to that, I think the proponents of this legislation 
realized the wisdom of my amendment. In fact, I think they have adopted 
it as their own in the manager's amendment, and I consider that high 
flattery that they would take what we offered and adopt it as a 
manager's amendment, but I still believe that this stand-alone 
amendment would make a better point in this case for why FASB should be 
left intact, and we should not, as Members of Congress, go about the 
process of instituting, by statute, written accounting rules.
  In fact, I know of no occasion in history in which Congress, by 
statute, has written an accounting rule, and so I do not think Members 
are that confident that they can go ahead and disregard the unanimous 
advice of the President's leading economic advisers and the most famous 
investor in history.
  When we think about it, the most famous investor in the country 
indicated that in a sense this bill H.R. 3574 sets an accounting rule 
that is in direct contradiction to the treatment of the same item in 
the Tax Code. So Warren Buffett has 62 years of investing experience. 
That seems to be a lot, a lot more, perhaps, than many of us here in 
the House, and I think if his recommendation is that we not institute a 
statute which changes the accounting rule, we should also abide by what 
he is talking about.
  We saw what happened with Enron and WorldCom, and they paid 
themselves tens of billions of dollars in stock options. And they were 
never accounted for, and I do not think this bill is going to do it. 
And I think my amendment would have helped.
  Mr. HASTINGS of Florida. Mr. Speaker, I yield back the balance of my 
time.
  Mr. SESSIONS. Mr. Speaker, I yield myself such time as I may consume.
  I thank you for your indulgence in hearing this debate today and for 
your wisdom and hard work to be with us through this process.
  Mr. Speaker, what we have heard today is, Members of Congress from 
all across this great country, California, Oregon, Florida, Texas and 
other places, who have talked about the need and the desire for us to 
pass this legislation that we have before us.
  I am proud that our speaker, the gentleman from Illinois (Mr. 
Hastert) and our majority leader, the gentleman from Texas (Mr. DeLay) 
are fully in support of this bipartisan legislation, legislation that 
has been brought to the floor through the leadership of the gentleman 
from Ohio (Mr. Oxley) and the gentleman from Louisiana (Mr. Baker) and 
the gentleman from Texas (Mr. Barton), who is the chairman of the 
Committee on Energy and Commerce, and certainly the words from the 
gentleman from California (Mr. Dreier), the chairman of the Committee 
on Rules, in talking about how this excites America and workers to 
achieve not only dedication and hard work, but also encourages biotech 
firms.
  I think this is exciting. I think this is the right thing. I think 
this is what Congress should be doing in the leadership of the 
gentleman from Texas (Mr. DeLay) and the gentleman from Illinois (Mr. 
Hastert) to make sure this kind of legislation consumes our time, is 
important to America and our future.
  In 2002, nearly 15 million Americans held stock options, about 13 
percent of private sector workers nationwide. About 85 percent of the 
existing stock options are held by nonmanagement workers. This is a 
whole lot to do about allowing people who get up and go to work every 
day, Mr. Speaker, who care about not only this country and about their 
families, but this offers them to protect that nest egg that grows.
  I am proud of what the Republican Party is doing by bringing this 
legislation to the floor. I am equally as proud that it is bipartisan, 
because it is doing the right thing for people, and I stand in support 
of this, encourage my colleagues to support the underlying legislation 
in the rule.
  Mr. Speaker, I yield back the balance of my time, and I move the 
previous question on the resolution.
  The previous question was ordered.
  The resolution was agreed to.
  A motion to reconsider was laid on the table.

                          ____________________