AMENDING THE INTERNAL REVENUE CODE OF 1986 TO ENCOURAGE THE GRANTING OF
EMPLOYEE STOCK OPTIONS -- HON. AMO HOUGHTON (Extensions of Remarks - July 29,
2002)
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HON. AMO HOUGHTON
OF NEW YORK
IN THE HOUSE OF REPRESENTATIVES
Friday, July 26, 2002
- Mr. HOUGHTON. Mr. Speaker, I am pleased to join my colleague from Ohio,
Mr. HOGHTON, in introducing our bill, the Workplace Employee Stock
Option Act of 2002, that would benefit working men and women who would receive
a new type of stock option under new section 423(d) of the Internal Revenue
Code. This bill is an updated and improved version of bills I introduced in
the 105th and 106th Congresses.
- We have been through difficult times in the past year. The financial
downturn has resulted
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from a variety of questionable accounting
practices by a number of companies. Unfortunately, stock options of all types
have been tarred by a common brush. This proposal is a new approach to
options. In spite of current problems, it is good for both employers and
employees if workers are also owners of the business.
- Congress is considering legislation to impose new laws on corporations and
accountants. Volume is reasonably intense in the debate on the advisability of
expensing the value of stock options when they are granted. Expensing of
options in financial statements may happen--even though there are several
unresolved issues. If expensing happens, one hopes that we will leave it to
the FASB and SEC to develop the best approach. Having said that, we would
propose that the new type of option contained in this bill would be exempt
from such valuation as a noncompensatory plan. Why? The option would be priced
at market, fully available to nearly all employees, as well as management, on
a nondiscriminatory basis, and subject to a relatively modest individual
dollar cap. If we require expensing of such a widely held benefit, employers
simply will not offer it.
- The highlights of the bill include: (1) substantially all full-time U.S.
employees would be eligible to participate, (2) the option price would be 100%
of the fair market value at time of grant, the maximum annual amount of a
grant per employee would be $11,000 (same as indexed 401 (k) amount), (4) no
tax to the employee at time of grant or exercise, including AMT, (5) at time
of sale the employee would receive ordinary income to the extent of the fair
market value at time of exercise, with any excess being capital gain, and (6)
the employer's deduction would be the fair market value at time of exercise
(same amount as employee reports at sale).
- The ever-widening compensation gap between the highly paid and the
nation's work force is cause for great concern. Once again, let us emphasize:
This new 423(d) option is designed for working men and women, whose everyday,
solid work enhances the company's overall performance. This is a broad-based
stock option program. Employees ought to be able to build their wealth beyond
that which they would ordinarily receive from a salary or bonus. This proposal
would add another leg on the stool for employee retirement by providing an
additional means of accumulating assets. It would encourage the long-term
holding of stock by deferring all tax until sale.
- We encourage our colleagues to join in cosponsoring this legislation.
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