California Members of Congress David Dreier (R) and Ann Eshoo (D) today sent a “Dear Colleague” letter to all their fellow members of Congress. A “Dear Colleague” is generally used to bring attention to an issue as well show who cares enough about an issue to send a note to all their fellow members of Congress. Please read full letter below, but especially the press clips that they include at the end of their letter that highlight the fact that many companies are already beginning to scale back their stock options programs to the rank and file workers and only give options to senior executives. As a decidedly non-senior-executive, sure, I don’t like this trend…
As Congress considers legislation to protect broad-based employee stock option plans, we hope you’ll bear in mind the impact that new mandatory expensing rules proposed by the Financial Accounting Standards Board (FASB) will have on rank-and-file employees. As the news excerpts below make clear, FASB’s proposal has forced many companies to discontinue their broad-based options plans for most employees, and even more are contemplating severely curtailing their programs or eliminating them altogether.
In order to protect this vital employee ownership program, we’ve introduced H.R. 913, the Broad-Based Stock Option Plan Transparency Act. This legislation will protect employee options by preventing the implementation of the FASB rule pending the SEC’s evaluation of enhanced disclosures. If you’d like to cosponsor H.R. 913 or have any questions about the bill, please contact (Dreier Contact name) (Rep. Dreier) at ###-#### or (Eshoo Contact name) (Rep. Eshoo) at ###-####.
Anna G. Eshoo
As many as 40% of publicly held companies are reconsidering broad-based option plans. “Based on his research and industry survey data, [Corey Rosen, the executive director of the National Center for Employee Ownership] estimated that at least 40 percent of publicly traded companies with stock option plans are reconsidering them and as many as a third may discontinue them in the next few years.” [New York Times, 2/19/05
Dell – “To curb option grants, companies are using a variety of strategies. Many, like Progress, are replacing some or all of their options with fewer shares of restricted stock. Others are simply reducing option grants, without offering a replacement. That’s the case at Dell, which awarded employees 51 million options in 2004, down [60%] from 126 million two years earlier.” [BusinessWeek Online, 2/16/05
Time Warner – “New financial reporting standards . . . which will require companies to treat stock options as expenses, ‘make it prohibitively expensive’ to continue the practice for all employees.” [New York Times, 2/19/05
Aetna - Aetna Inc., once known for its generous stock options, said it would no longer offer them to rank-and-file employees under the new accounting standards.” [Boston Globe, 1/9/05
Pfizer – “Pfizer said in the U.S. Securities and Exchange Commission filing that in response to new accounting rules requiring employee stock options to be expensed, it plans in 2005 to reduce the number of options granted, ‘except for most of senior Pfizer management.'” [Reuters, 2/28/05
Whole Foods – “John Mackey, chairman and chief executive, branded [the new FASB rule] ‘a stupid rule’, but said the company had opted to protect shareholders by limiting the dilution from option expensing to 10 per cent of earnings in any one year.” [Financial Times, 2/10/05
Others – “In addition to the companies that have dropped options programs, Delphi, Eastman Kodak and AstraZeneca plan to cut back on the options they distribute to regular employees, said Corey Rosen, the executive director of the National Center for Employee Ownership. Last year, Citigroup ended its renewable stock option plan.” [New York Times, 2/19/05, emphasis added]