Washington (June 4, 2003) -- Legislation aimed at short-circuiting FASB’s plans for mandatory expensing of stock option compensation “would undermine the board’s standards setting processes,” and “send a clear and unmistakable signal that Congress is willing to interfere with accounting standards,” FASB Chairman Robert Herz warned the House Financial Services Capital Markets Subcommittee Tuesday.
The bill would require “enhanced disclosure” of stock options by corporations and place a three-year moratorium on new accounting standards for stock options pending the result of studies of the effects of those disclosures.
In voicing the board’s “strong opposition” to that legislation, Herz further warned that a moratorium on new stock option standards would undermine FASB’s efforts to promote global uniformity in accounting rules.
"It would send a clear and unmistakable signal that Congress is willing to intervene in the independent and open accounting standard setting process based on factors other than the pursuit of sound and fair financial reporting," Herz testified.
House sponsors of the bill, however, told the subcommittee that any across the board effort to require corporations to expense stock options would have a “devastating impact on job creation and our economic life.”
“Some have alleged that our legislation is an interference with the accounting setting process,” but “we have an obligation to American workers and American investors” to prevent impediments to economic growth, said Rep. David Drier, R-CA. “This is a public policy issue, it’s not an accounting issue,” he said.
The bill’s co-sponsor, Rep. Anna Eschoo, D-CA) told the subcommittee that expensing stock options will not “rein in any excessive executive compensation” because 80 percent of stock options go to rank and file employees of public companies.
Addressing abusive compensation schemes that benefit top execs by requiring all stock options to be expensed “throws the baby out with the bathwater,” she said.
-- Ken Rankin
