Today, members of the House New Democratic Coalition (NDC) expressed concern with a controversial proposal for expensing employee stock options released by the Federal Accounting Standards Board (FASB). The proposal will likely lead to the gross overvaluation of employee stock options and corresponding investor confusion, having a chilling effect on broad-based employee stock option plans.
“Stock options make possible extraordinary awards for ordinary Americans,” stated NDC co-chair Ron Kind (D-WI). “They provide rank and file employees with a stake in ownership of a company, driving productivity and innovation. The FASB proposal will hurt many small businesses, especially high-tech firms, that offer stock options to their employees and will likely destroy the partnership culture of distributing stock options to workers.”
“Stock options are an important part of the strategy for many innovative companies - both start-ups and mature firms - seeking to compete, grow and hire workers," said NDC Co-Chair Adam Smith. "At a time when economic growth is paramount for the public and policymakers alike, FASB's proposal has the potential to harm both companies and workers.”
The absence of a reliable valuation model, one that takes into account the unique qualities of employee stock option plans, under the FASB proposal will result in the overvaluation of stock options, compromising the accuracy of financial statements and distorting information available to investors and shareholders.
“It is important to note that since there is no reliable method for measuring the value of stock options, this proposal brings with it no associated benefits in terms of greater visibility or information available to shareholders,” continued Smith. “This proposal is especially troubling to me since it threatens to reduce the availability of stock options to rank-and-file workers - options have given employees a real stake in their companies and I fear that such opportunities could be a thing of the past.”
“This issue cuts to the heart of job creation, economic growth and competitiveness,” Rep. Anna Eshoo (D-CA) said. “Broad-based stock option plans for rank-and-file employees are a critical tool in helping small start-ups to mature into medium and large-size companies. Yet, if FASB’s proposal is put into effect, it will result in the elimination of most broad-based stock option plans, doing away with a powerful tool for attracting talented workers and promoting employee ownership.”
Legislation introduced in Congress, H.R. 3574, the Stock Option Accounting Reform Act, would require the Securities and Exchange Commission to study the impact of the FASB proposal before it goes into effect.