Tech Lobbyists Applaud Stock Option Vote

The legislation faces an uphill battle in the Senate, and corporate governance experts say it would be foolish for companies to presume that the Financial Accounting Standards Board will back off under the pressure of lawmakers and lobbyists for the technology companies.

Partly in response to the dour investor mood after Wall Street's recent scandals, some tech companies"including Amazon.com Inc. and Netflix Inc."have opted to expense options. Industry giant Microsoft Corp. abandoned them altogether, instead granting stock with restrictions on when employees can sell the shares.

The bulk, however, have opted to fight rather than switch, trying to preserve what they consider to be one of the best ways to motivate employees and grow the technology economy. And in an industry where engineering and hope often combine into unprecedented hype, even the slightest step away from inevitability provided them with a glimmer of hope.

"The FASB people were trying to promote the idea this was a done deal, and nobody needed to think about it anymore," said Rick White, chief executive of TechNet, a group that represents 200 high-tech companies. "We weren't quite willing to live with that."

Still, they recognize that the proposal to limit FASB faces an uphill battle in the Senate, where Sen. Richard Shelby, the Banking Committee's chairman, has criticized congressional meddling in the work of the independent accounting body and stalled efforts to do so.

"If I were a betting man, I'd still bet it's going to be implemented," said Greg Taxin, chief executive of Glass, Lewis and Co., which advises institutional investors. "I do believe the Senate and Sen. Shelby will reject political interference with the accounting rules and principles."

Accounting for stock options as an expense in earnings reports would increase transparency for shareholders. But this would also reduce profits, at least on paper, and likely discourage their use by companies mindful of their stock price.

Still, they were pleased by the 312-111 bipartisan House vote to rein in the proposed accounting rules.

"In this era of partisanship in Washington, it's a rare occasion where you have a majority of both caucuses voting in favor of legislation that is not simply naming a post office," said Jeff Peck, chief lobbyist for the International Employee Stock Options Coalition, which represents several anti-expensing tech companies.

"You'd have to be pretty deaf not to hear the message being conveyed," he said.

Piper Cole, Sun Microsystems Inc.'s vice president of global public policy, was even more optimistic. "Maybe it's finally getting through to people that this is an employee issue," she said. "This is a motivation issue. This is an innovation issue. This isn't an executive compensation issue."

For more than two years, tech companies and their lobbyists have organized letter campaigns, orchestrated rallies and even offered some compromises, casting stock options as something beneficial to all rank-and-file employees, not just corporate fat cats.

"This is no longer just a technology industry issue," said Jennifer Greeson, an Intel Corp. spokeswoman based in Washington, D.C.

Studies show 14 million U.S. workers, or 13 percent of the private sector work force, hold stock options. The vast majority"94 percent"consider themselves part of the middle class or lower.

Silicon Valley has embraced stock options since the days when fruit orchards outnumbered tech outfits. Instead of attracting talent with high salaries, startups dangled stock options before potential hires to give them a stake in their work.

Options allow employees to buy company stock at a predetermined price. When firms do well, so do their workers. And when times are tough, so-called underwater options can provide additional motivation to turn things around.

Accounting for stock options as an expense in earnings reports would increase transparency for shareholders. But this would also reduce profits, at least on paper, and likely discourage their use by companies mindful of their stock price.

In 2002, tech lobbyists managed to keep stock-option expensing out of the Sarbanes-Oxley bill that strengthened financial regulations, but their success in Congress pushed the issue onto the plate of regulators.

Tech companies argue that stock options can't be easily quantified and will only diminish earnings. And they have a dilutive effect on stock when exercised, so they eventually influence the books anyway.

In March, Norwalk, Conn.-based FASB announced its proposed regulations, which take effect Dec. 15 if given final approval and if Congress doesn't intercede.

Last month, FASB Chairman Robert Herz said the panel may delay a final rule because of the load of new regulations enacted since 2002. The SEC's chief accountant has said FASB should consider delaying the rule to 2006.

Accounting board member Mike Crooch said Wednesday that no decision has been made on a delay.

"We are disappointed with the vote because we think our independence and the way we do things is the appropriate way to set accounting standards," he said.

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