House Committee Votes to Restrict Expensing of Stock Options
The House of Representatives’ Financial Services Committee on Tuesday approved a bill that would require companies to count as an expense only the cost of options offered to their top five executives, Reuters reported. The proposal by the Financial Accounting Standards Board (FASB) would require counting the cost of all employee stock options.
The bill, approved on a 45-13 vote, also delays implementation for a year until the Securities and Exchange Commission studies the economic impact of the change.
Bill sponsor U.S. Rep. Richard Baker (R-La.) said he wants to protect start-up companies that use stock option plans as an inexpensive way to attract workers. "We're going to let a job-creation tool be continued," he said.
High-tech companies have used options liberally, and they argue that start-ups use stock options rather than big salaries to recruit talent. Baker said expensing of options for the top five executives would target concerns that stock options have been abused by those at the top.
Currently, U.S. companies must disclose option information in footnotes to their financial statements, while FASB proposes treating stock options as expenses — just as salaries or bonuses are — on company income statements.
FASB contends that counting the cost of stock options would give investors a better understanding of a company’s profits and executive compensation packages.
Baker’s bill was co-sponsored by more than 100 other lawmakers. A vote on the House floor may take place before the August recess. Meanwhile, a similar bill has been filed in the Senate, but Sen. Richard Shelby (R-Ala.), chair of the Banking Committee, has already said that FASB should remain independent and set accounting standards without the influence of politics.