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Congress, Lies, Stock Options & the Common Worker

June 24, 2002
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As each day goes by I’m more and more convinced that several members of ourUnited States Congress have no clue on how to run a profitable, on-goingbusiness. This is somewhat disconcerting when one reads about all the proposedlegislation many are politicking for post-Enron.

Of particular concern is this whole issue around the accounting for stockoptions. The dotcom boom gave rise to the idea of making stock options anintegral part of employee compensation. The practice proved a double-edgedsword, making millionaires of some and paupers of others.

For its part, Congress seems clueless on addressing the accounting and taxramifications of this practice and how best to level the playing field.

Senators Carl Levin and John McCain would like to change the way you expensestock options. They want you to do it through your company’s income statement.This way is different than the way it’s done now. Now, you typically do notexpense stock options at all, because of accounting rules that have been in theplace since the 1970s.

The problem with the income-statement approach is this:

  1. Right now the accounting treatment of stock options is very favorabletoward businesses.

  2. As a result of this favorable option accounting, companies have workedhard at giving options to as many rank-and-file employees as possible; and

  3. In so doing, have made companies more productive than ever before. Studiesperformed by WorldatWork in the 1990s show a direct link between one’s abilityto drive option grants lower in the organization and enhance productivity.

I’ve personally always struggled with how to value options at the time they’regranted. Apparently, options are not worth anything when they are granted. Ifthey were, then (1) the IRS would immediately tax you (which they do not) and/or(2) you could borrow against them at your neighborhood bank (which you can not).Further, if one really could value options, it would mean you would have acrystal ball on your company’s future stock price -- and if I could do that, Isure wouldn’t be writing this article.

Then there is Sen. Joe Lieberman, who has proposed corporations give optionsto rank-and-file employees in lieu of pay. Lieberman’s strategy is great forexecutives who are making key strategic decisions, but unless your CEO plans oncalling on the mailroom to get your opinion on a possible merger, this wouldprove disastrous very quickly.

In any event, it sure would be nice if Congress would actually study what itis they plan on proposing on before making it a campaign issue. They count onthe general public being ignorant, which is a poor assumption considering today’sworker and his/her access to credible information.

Workforce Online, May 2002 -- Register Now!

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