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To: Les H who wrote (37716)	1/20/2000 8:39:00 PM
From: Benkea	Respond to of 99985

Thursday January 20, 8:13 pm Eastern Time U.S. mulls adding stock options to inflation data By Mark Egan WASHINGTON, Jan 20 (Reuters) - The U.S. government said on Thursday it is considering the inclusion of stock options, a driving force behind booming wealth in the world's richest economy, in a major inflation indicator. The Labor Department is mulling the addition of stock options to its quarterly Employment Cost Index report, which measures the pay and benefits of U.S. workers, to more accurately capture the changing face of the new economy. The department's Bureau of Labor Statistics has already completed a preliminary study on the issue and plans a full-blown examination this year on how prevalent such stock options are in the economy. ''We are conducting research on including stock options,'' BLS economist Frances Harris told Reuters. The ECI, a favored report of Federal Reserve Chairman Alan Greenspan who uses it to gauge inflation pressures, has often been criticized by economists for not counting stock options. Economists argue the data fails to capture the increasing wealth of a growing number of American workers, whose company loyalty is often paid for with lucrative stock options. But Harris warned that it was unlikely that stock options, which give employees the option to buy heavily discounted shares, could be included in the index before 2002. She said BLS expects to complete its study on how widespread the use of stock options are by the end of this year. Once that information is in hand, the harder issue of how to gauge the employers' cost of stock options needs to be considered before options could be included in the ECI report. ''Based on the results of the prevalence study and a study on the cots of options, BLS will consider whether to include options in the ECI,'' she said. Peter Kretzmer, senior economist at Banc of America LLC, said the inclusion of options to the index would be a welcome addition to the ECI. ''When they resolve these issues it will be a step forward because the increased reliance on options has made these measures less reliable indicators of worker compensation,'' Kretzmer said. ''It's a difficult problem because it's difficult to value those options.'' The payment of stock options, once a privilege only associated with high-ranking company executives, has become increasingly common, particularly with start-up technology companies who use them to entice workers who might otherwise choose to work in a less risky environment. Anecdotal reports of relatively low-level workers at companies such as America Online Inc., Microsoft Corp. and others retiring in their late 20s and early 30s on millions in profits realized from stock options have become increasingly commonplace. ASTOUNDING WEALTH That wealth has been driven largely in recent years by Internet and technology stocks which have soared in value at an astounding rate. Kretzmer said the addition of options would help ''reconcile the seeming anomaly between very tight labor markets and rather slow increases in compensation.'' There have been few indications in recent months of wage inflation despite an unemployment rate of just 4.1 percent -- the lowest level in a generation and a level most economists had thought would spark wage inflation. More immediately, BLS is planned some minor tweaks to the ECI. Effective in the June 2000 ECI report, to be released in late July, BLS will include hiring and referral bonuses to the report as non-production bonuses. BLS is also modifying its method of gathering data on retention bonuses. The addition of hiring bonuses could have a noticeable impact on the report. Hiring, or signing bonuses have become increasingly common because labor market tightness has made it harder for employers to attract the workers they want. The Commerce Department reported in recent months that union contracts reached in October included $5.9 billion in signing bonuses on an annualized basis, while in November union contracts signed in the manufacturing industry alone included a further $1.6 billion in such incentives. Economists have a bevy of complaints about the ECI, a report know for its quirks. For example, in tallying the ECI, the government takes an average of wage gains in various occupations. But if a person moves from a low-paid job to a higher-paid one, that is not counted as a wage rise. The ECI counts wages, salaries and benefits but excludes overtime pay, and shift differentials. It also includes commissions, incentive pay and production bonuses.