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SEC Chairman Speaks on Stock Options

March 9, 2005
at 12:00 pm PST

Testifying before a Senate Banking Committee hearing today, Securities and Exchange Commission (SEC) Chairman William Donaldson today said the SEC will issue guidance on how to value stock options for expensing this month. No word on if the SEC is going to go the way of the Financial Accounting Standards Board (FASB) who basically punted on the valuation issue by saying that a company could use the Black/Scholes method, the binomial method or by consulting with your teenage nephew, Bucky, who by all accounts is a math whiz.

Senator Bob Bennett (R-UT), who, while a proponent of expensing, has questioned the FASB’s logic on valuation was quoted in a leading DC policy publication as saying, “”What in the world kind of accounting standard is that, when FASB says, ‘You have to expense [stock options] but we don’t particularly care what value you put on them.” Ummm, I’d like to be the first to second that.

Cisco and other companies are continuing to urge the Congress and the SEC to delay the June 15 date for expensing by encouraging an economic impact study. The FASB has claimed that they have nothing to do with economic impact, they only do accounting. The Congress, in my humble opinion, DOES have everything to do with economic impact and should utilize the Hippocratic oath here: First, do no harm. Look at the econoic impact before doing anything.

In a TechNet press conference yesterday, it was mentioned that some high-profile companies, including Pfizer have announced plans to stop or scale back their options plans and will only give options to senior executives. “The prediction was made that people would stop giving options to anybody but the top executives, and that is coming true,” Senator Bennett said, according to CongressDaily’s article by Molly Peterson.

Thoughts on this anyone? Bueller?

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