Seeker of Truth
06-08-2003, 08:02 PM
Consider Your Options
By James K. Glassman 06/04/2003
Editor's note: The following is testimony TCS host James K. Glassman presented at a hearing entitled, "The Accounting Treatment of Employee Stock Options" before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Committee on Financial Services, U.S. House of Representatives.
Mr. Chairman and members of the subcommittee:
At a time when roughly half of Americans own stocks - either in the form of individual shares or in mutual funds - the Congress has become appropriately concerned about scandals that have shaken the faith of investors.
Today's hearing focuses on stock options, issued as incentive compensation to chief executives and other managers and employees of publicly traded companies. The hearing is especially timely because the Financial Accounting Standards Board (FASB) is moving quickly toward a new rule that will require that companies expense such options when they are granted. The corporate scandals, which began with massive restatements of earnings in the fall of 2001 by Enron Corp., have put new life into the FASB's long-term crusade to enact an options expensing rule.
There is concern, however, that FASB is acting in a precipitous fashion and that it is ignoring serious critics of expensing - among them, not only successful corporate leaders but also respected economists and a large number of financial and accounting professionals. Today's hearing focuses on H.R. 1372, "The Broad-Based Stock Option Transparency Act of 2003," which would obviate the need for mandatory expensing of options by directing the Securities and Exchange Commission to set new rules for broader disclosure of the effects of options on shareholders and to study the effects of those rules over three years.
I strongly favor the approach in H.R. 1372. In my view, requiring the expensing of stock options would be a serious, even disastrous, mistake, for three reasons:
By severely discouraging the use of a powerful incentive for employees at all levels, mandatory expensing is likely to have a dangerously adverse impact on innovation, economic growth and national competitiveness. Options work. They align the interests of managers and shareholders, and they provide a powerful encouragement to innovation and hard work.
Mandatory expensing of options is likely to confuse and mislead, rather than further enlighten, investors. As Howard Gleckman of Business Week writes, instead of shining a light on a company's financial health, expensing "may leave hapless investors blinded by a fog of incomprehensible calculations."
Much more @ techcentralstation.com (http://www.techcentralstation.com/1051/techwrapper.jsp?PID=1051-250&CID=1051-060403E)
By James K. Glassman 06/04/2003
Editor's note: The following is testimony TCS host James K. Glassman presented at a hearing entitled, "The Accounting Treatment of Employee Stock Options" before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Committee on Financial Services, U.S. House of Representatives.
Mr. Chairman and members of the subcommittee:
At a time when roughly half of Americans own stocks - either in the form of individual shares or in mutual funds - the Congress has become appropriately concerned about scandals that have shaken the faith of investors.
Today's hearing focuses on stock options, issued as incentive compensation to chief executives and other managers and employees of publicly traded companies. The hearing is especially timely because the Financial Accounting Standards Board (FASB) is moving quickly toward a new rule that will require that companies expense such options when they are granted. The corporate scandals, which began with massive restatements of earnings in the fall of 2001 by Enron Corp., have put new life into the FASB's long-term crusade to enact an options expensing rule.
There is concern, however, that FASB is acting in a precipitous fashion and that it is ignoring serious critics of expensing - among them, not only successful corporate leaders but also respected economists and a large number of financial and accounting professionals. Today's hearing focuses on H.R. 1372, "The Broad-Based Stock Option Transparency Act of 2003," which would obviate the need for mandatory expensing of options by directing the Securities and Exchange Commission to set new rules for broader disclosure of the effects of options on shareholders and to study the effects of those rules over three years.
I strongly favor the approach in H.R. 1372. In my view, requiring the expensing of stock options would be a serious, even disastrous, mistake, for three reasons:
By severely discouraging the use of a powerful incentive for employees at all levels, mandatory expensing is likely to have a dangerously adverse impact on innovation, economic growth and national competitiveness. Options work. They align the interests of managers and shareholders, and they provide a powerful encouragement to innovation and hard work.
Mandatory expensing of options is likely to confuse and mislead, rather than further enlighten, investors. As Howard Gleckman of Business Week writes, instead of shining a light on a company's financial health, expensing "may leave hapless investors blinded by a fog of incomprehensible calculations."
Much more @ techcentralstation.com (http://www.techcentralstation.com/1051/techwrapper.jsp?PID=1051-250&CID=1051-060403E)