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To: Giordano Bruno who wrote (180199)	7/16/2002 6:52:03 AM
From: Giordano Bruno	Respond to of 436258

Senate Reformers Sidestep Stock Options Quandary By REUTERS Filed at 9:10 p.m. ET WASHINGTON (Reuters) - Stock option expensing -- the monster in the attic of America's house of corporate scandal -- was conspicuously ignored in an otherwise sweeping corporate reforms bill passed by the Senate on Monday. Fierce debate erupted off and on for days on the floor, but in the end, opponents blocked a move to force a Senate reckoning on how companies account for the controversial executive perk. As a result, the bill from Sen. Paul Sarbanes adopted by a unanimous vote will soon head to conference committee with the House of Representatives lacking a strategy on an issue that critics call a root cause of Wall Street's accounting crisis. Critics charge the practice may tend to inflate some corporate earnings reports and skew management priorities. Michigan Democratic Sen. Carl Levin said the Senate's failure to act ``leaves the reform work with a gaping hole.'' The battle between would-be reformers and lawmakers allied with industry lobbyists bitterly opposed to changes in option accounting rules was expected to continue in the conference. Rep. John LaFalce, a New York Democrat, said in a statement late on Monday he would work in the conference to amend the Sarbanes bill with proposals focused on shareholder approvals of stock option plans and on the expensing issue, itself. ``Management's interest must be aligned with shareholders ... executive compensation needs to be reined in, and ... financial statements of public companies should reflect the real costs of stock option plans,'' he said in a statement. Federal Reserve Board Chairman Alan Greenspan and multibillionaire Warren Buffett are among those who favor changing stock option accounting. Coca-Cola Co. and Washington Post Co., both of which have Buffett on their boards, said on Monday they would soon begin subtracting the cost of stock options from profits, as most accountants favor. But opponents remained opposed to government intervention on the question, arguing that stock options were not all bad and that ways of valuing them were still unreliable. ``Stock options are a good idea ... But there are greedy, unethical corporate executives who have abused the idea,'' Sen. Joseph Lieberman told CNN on Monday. ``What we ought to do is not let executives give themselves options, but require boards of directors to approve these stock options plans. ``If you force a company to expense options when they're granted ... there will be fewer options.'' OPTIONS' SPECIAL STATUS Stock options enjoy a rare privilege in U.S. accounting. Although they form a good portion of some executives' pay packets, companies are not required to count them as normal compensation costs by subtracting them from the most common measures of profits on their income statements. The Financial Accounting Standards Board, a private body that writes U.S. accounting rules, was considering requiring that options be expensed against profits eight years ago, when options were becoming widespread, but Congress intervened. Some lawmakers, including Lieberman, a Connecticut Democratic, worked to kill FASB's option expensing proposal, and it died after corporations threatened to shut FASB down. FASB ended up adopting a measure that recommended expensing stock options, but made it optional as long as the impact of their cost was disclosed in financial statement footnotes. Only two S&P 500 Index companies -- aircraft builder Boeing Co. and grocer Winn-Dixie Stores Inc. -- decided to expense, while 498 others chose the footnote option. In years that followed, as markets boomed, stock options were awarded to corporate executives by the boatload. The non-cash compensation was seen as a way to attract and retain talented senior managers. The options allowed executives to buy shares at below-market prices and sell them later at market, profiting on the difference. Critics have said the short-term exercise periods of option plans, often three to five years, motivated some executives to use questionable means to quickly jack up their company's stock price, cash in their options, rake in a fortune and walk away. Executives at bankrupt energy trader Enron Corp. made millions of dollars by selling stock in the company. Today, after a decade-long options bonanza, Wall Street is awash in scandal and the issue is back to haunt lawmakers. ``Congress has painted itself into a box ... Lieberman is not going to change his mind because it would make him look totally wrong for opposing stock option expensing in the first place,'' said Rice University accounting professor Bala Dharan. ``So they're hoping for a market solution.'' As the market slumps, technology and telecommunications lobbyists find themselves with diminishing power to oppose expensing declines, possibly opening the door for change in the near future. ``If the market doesn't recover for another year or more, many of these people are going to figuratively die off, so the whole lobbying picture will change. The markets then may begin to see options differently,'' Dharan said. ``I don't see any other way out of this until the market punishes these companies that have been issuing all these options pretty severely.'' FASB AIN'T NOBODY'S SUGAR DADDY-G-