US House subcommittee clears stock option legislation

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15 May 2004

A subcommittee within the US House of Representatives has cleared draft legislation – known as H.R.

3574, the Stock Option Accounting Reform Act – that would restrict the expensing of stock options in the United States to options granted to chief executives and the next four highest paid officers. Small businesses would be exempt from expensing options entirely, and newly public companies could delay expensing for three years. And the bill would prohibit the Securities and Exchange Commission from enforcing the proposed FASB rule until the SEC studies its economic impact. The legislation moves on to consideration by the full committee and, if approved, then on to the House. Before it could become law, identical legislation would have to be passed in the US Senate. Supporters of the legislation say it would "would preserve broad-based employee stock option plans and improve American competitiveness." A number of members of Congress have said they will oppose this legislation. For example, one senator issued a statement calling the House bill "misguided", saying that "stock option compensation is an expense that should be recorded on a company's income statement.... Companies that do not expense stock option compensation are misleading investors. [He] also expressed concern that members of Congress were substituting political decisions for complex technical accounting decisions and were undermining the independence of the nation's private accounting standards board."

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