Richard Baker, (R-LA) won a victory yesterday for companies that use stock options for compensation, ushering through a bill to limit how U.S. companies will be required to expense them.
The House Financial Services Committee yesterday voted 45 to 15 to pass legislation which would require companies to expense stock options only for their top five executives.
That development lays out a challenge to a proposal from the Financial Accounting Standards Board which requires that all employee options be expensed.
“Today this committee has stated strongly that it’s important that a vital job-creation tool be allowed to continue,” Baker said.
“The whole bill is silly,” said Cindy Ma, a financial economist at NERA Economic Institute.
“If there are good economic reasons for options expensing it should be applied for all employees regardless of rank.”
Stock options became popular in the 1990s as a way to encourage employees and management to perform well, sometimes giving the company’s stock price a lift and helping the company manage cash pay.
Headline scandals including the implosion of WorldCom and Enron have been blamed in part to the unrestrained issuance of stock options to top management. Those executives, in an effort to get the stock price up, cooked their companies books.
The Financial Accounting Standards Board approved a proposal on June 14 to require companies to expense options for all employees.
Baker’s bill limits the expensing of options – which reduces profits for companies that issue a lot of options – to just the top five executives.
“Congressional intervention to protect the top executive compensation in this country does not sound like the creation of the world’s most transparent accounting system,” Rep. Brad Sherman (D-CA) told The Post.