Providing for Consideration of H.R. 3574, Stock Option Accounting Reform Act
PROVIDING FOR CONSIDERATION OF H.R. 3574, STOCK OPTION ACCOUNTING REFORM ACT -- (House of Representatives - July 20, 2004)
Mr. SESSIONS. Mr. Speaker, by direction of the Committee on Rules, I call up House Resolution 725 and ask for its immediate consideration.
The Clerk read the resolution, as follows:
H. Res. 725
Resolved, That at any time after the adoption of this resolution the Speaker may, pursuant to clause 2(b) of rule XVIII, declare the House resolved into the Committee of the Whole House on the state of the Union for consideration of the bill (H.R. 3574) to require the mandatory expensing of stock options granted to executive officers, and for other purposes. The first reading of the bill shall be dispensed with. All points of order against consideration of the bill are waived. General debate shall be confined to the bill and shall not exceed one hour equally divided and controlled by the chairman and ranking minority member of the Committee on Financial Services. After general debate the bill shall be considered for amendment under the five-minute rule. It shall be in order to consider as an original bill for the purpose of amendment under the five-minute rule the amendment in the nature of a substitute recommended by the Committee on Financial Services now printed in the bill. The committee amendment in the nature of a substitute shall be considered as read. No amendment to the committee amendment in the nature of a substitute shall be in order except those printed in the report of the Committee on Rules accompanying this resolution. Each such amendment may be offered only in the order printed in the report, may be offered only by a Member designated in the report, shall be considered as read, shall be debatable for the time specified in the report equally divided and controlled by the proponent and an opponent, shall not be subject to amendment, and shall not be subject to a demand for division of the question in the House or in the Committee of the Whole. All points of order against such amendments are waived. At the conclusion of consideration of the bill for amendment the Committee shall rise and report the bill to the House with such amendments as may have been adopted. Any Member may demand a separate vote in the House on any amendment adopted in the Committee of the Whole to the bill or to the committee amendment in the nature of a substitute. The previous question shall be considered as ordered on the bill and amendments thereto to final passage without intervening motion except one motion to recommit with or without instructions.
The SPEAKER pro tempore (Mr. Boozman). The gentleman from Texas (Mr. Sessions) is recognized for 1 hour.
Mr. SESSIONS. Mr. Speaker, for the purpose of debate only, I yield the customary 30 minutes to the gentleman from Florida (Mr. Hastings), pending which I yield myself such time as I may consume. During consideration of this resolution, all time yielded is for the purpose of debate only.
Mr. Speaker, the resolution before us is a well-balanced, structured rule that makes in order a manager's amendment and three amendments offered by members of the minority, including a minority amendment in the nature of a substitute. It provides for 1 hour of general debate, equally divided and controlled by the chairman and ranking minority member of the Committee on Financial Services.
The rule waives all points of order against consideration of the bill and provides that the amendment in the nature of a substitute recommended by the Committee on Financial Services, now printed in the bill, shall be considered as an original bill for the purpose of amendment, and shall be considered as read.
It makes in order only those amendments printed in the Committee on Rules report accompanying the resolution, and provides that the amendments printed in the report may be considered only in the order printed in the report, and may only be offered by a Member designated in the report. They shall be considered as read, debatable for the time specified in the report, equally divided and controlled by the proponent and an opponent, not be subject to amendment, and not be subject to a demand for a division of the question in the House or in the Committee of the Whole.
Finally, the rules waive all points of order against the amendments printed in the report, and provides one motion to recommit with or without instructions.
Mr. Speaker, I rise today in strong support of the rule for H.R. 3574 as well as the underlying legislation. This bill offered by my good friend from Louisiana (Mr. Baker) is carefully constructed legislation that will help the United States to retain its global dominance in the biotechnology and high-technology sectors while creating new jobs, fostering innovation and enhancing productivity. It will also empower rank-and-file employees to share in the benefits of their hard work by allowing them to earn an equity stake in the companies where they work every day to create new products and technologies keeping America one step ahead of the rest of the world in technological advances and competitiveness.
H.R. 3574 achieves this worthy goal by bringing some common sense and discipline back to the debate over stock options expensing. First, it requires the immediate expensing of the stock options granted to the CEO and the next four most highly compensated executives of a company, consistent with information that must be filed with the SEC.
Second, it requires that options granted to the five top senior executives be valued in such a way that mitigates some of the most severe problems with FASB's expected valuation models which are based on valuation models for a type of option that differs fundamentally from stock options by virtue of being freely traded on open exchanges.
Third, it exempts certain small businesses from what we call the top five rule expensing requirement and delays option expensing for small business issuers until 3 years after an initial public offering has taken place, allowing a small business' stock to settle down from the initial volatility of the initial public offering.
Fourth, it prohibits the SEC from recognizing any stock option expensing accounting standard until the standard recognizes the true expense of the stock option on a company's financial statement when the option is exercised, expires or is forfeited, and a comprehensive economic impact study has been completed by the Secretary of Commerce and the Secretary of Labor.
Finally, this legislation improves corporate governance and transparency by requiring the SEC to issue a rule mandating that public companies include more detailed information on stock option and stock purchase plans in their public periodic reports, such as plain-English descriptions that describe the effect that stock options will have on earnings per share and the number of outstanding stock options.
Throughout the 108th Congress, the Republican majority in this House has championed and advanced a legislative program full of efforts to improve economic growth, corporate governance, and transparency on behalf of investors across the United States. Unfortunately, the Financial Accounting Standards Board's recent recommendation to mandate the expensing of stock option runs contrary to this pro-investor agenda. It represents a step in the wrong direction by providing investors with less accurate information about public-traded companies which will lead investors to a distorted picture of a company's financial performance. Even worse, the mandatory expensing proposal threatens to destroy broad-based plans and the productivity, innovation, and economic growth they currently generate.
I do not believe that Congress should replace FASB or become suddenly interested in micromanaging accounting standards; however, the proposal to expense all stock options does not simply have an academic outcome. It would have a negative real-world policy impact by destroying the American partnership culture of distributing stock options to our entire workforce. I believe that allowing such a proposal to go forward will choke off job growth, innovation, and entrepreneurship that broad-based ownership generates; and Congress does have a very real and immediate response to prevent this from happening.
The research behind the economic benefits of stock options support this view. As two Rutgers researchers recently concluded " ..... using broad-based options to create a partnership model of the corporation will, over the long run, help to make most companies more competitive and create more wealth for shareholders."
Research also shows that companies with stock-based option plans receive a one-time, but permanent, boost to their productivity of about 4 percent compared to what productivity would have been without entrepreneurship and employee ownership. More importantly, total shareholder returns go up by an average of about 2 percent. This kind of growth is vital to improving our economy and creating jobs; and I believe this kind of incentive should be nurtured, not eliminated.
Data on stock ownership also shows that the 100 largest high-tech firms that focus on the Internet, average employees hold approximately 19 percent of their company's stock, 17 percent accumulated through stock options. Top executives hold only 14 percent, demonstrating that stock options have empowered rank-and-file employees and low-level managers to acquire a stake in their work by accumulating more ownership in their companies than their bosses. Ninety-eight of these 100 companies provide options to them or to most of their employees. In Intel's case, for example, 98 percent of the options granted between 1998 and 2002 went to employees other than the top five executives.
More than 200 companies from more than 29 States have filed public comments opposing mandatory expensing. The NASDAQ, which lists 3,600 companies, opposes expensing, and opposition to FASB's proposal comes not only from the high-tech and biotech sectors but also from other areas of our economy, such as from the National Association of Manufacturers, the U.S. Chamber, America's Community Bankers, the Business Roundtable, and the Association of Financial Professionals.
I would like to thank the gentleman from Louisiana (Mr. Baker), the Committee on Financial Services chairman; the gentleman from Ohio (Mr. Oxley); and the gentleman from California (Mr. Dreier), the young chairman of the Committee on Rules, for all of their hard work, their vision, and leadership on this issue on behalf of American workers and investors. I believe this legislation improves the financial information available to investing for the public while ensuring that rank-and-file employees and middle management can still participate in the great American tradition of a broad-based employee ownership of their company.
The choice presented by this legislation is very stark and clear: Should Congress allow inside-the-beltway accounting technicians to implement standards with severe negative economic consequences, or should we develop policies that encourage economic growth, job creation, and international competitiveness? I say yes. I believe the choice is clear and that Congress should take this opportunity to stand up for American workers and business. I encourage all of my colleagues to support this rule and the underlying legislation.
Mr. Speaker, I reserve the balance of my time.
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Mr. SESSIONS. Mr. Speaker, I yield myself such time as I may consume.
What this legislation does do is run the risk of encouraging entrepreneurs and companies and people to work harder, produce better products for this country, to do the right thing for the investor, but mostly it runs the risk of making sure that the person who would get that stock option is able to then take advantage of that and better their life and to better the life of America by making sure that people have money in their pockets to where they can make their own decisions.
Mr. Speaker, I yield such time as he may consume to the gentleman from California (Mr. Dreier), chairman of the Committee on Rules.
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Mr. SESSIONS. Mr. Speaker, I would like to notify my colleague, the gentleman from Florida (Mr. Hastings), that at this time the majority does not have additional speakers. I believe I have approximately 5 minutes remaining, and I would encourage him to utilize that time that is necessary for him to close, and then I will do so myself.
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Mr. SESSIONS. Mr. Speaker, I yield myself such time as I may consume.
I thank you for your indulgence in hearing this debate today and for your wisdom and hard work to be with us through this process.
Mr. Speaker, what we have heard today is, Members of Congress from all across this great country, California, Oregon, Florida, Texas and other places, who have talked about the need and the desire for us to pass this legislation that we have before us.
I am proud that our speaker, the gentleman from Illinois (Mr. Hastert) and our majority leader, the gentleman from Texas (Mr. DeLay) are fully in support of this bipartisan legislation, legislation that has been brought to the floor through the leadership of the gentleman from Ohio (Mr. Oxley) and the gentleman from Louisiana (Mr. Baker) and the gentleman from Texas (Mr. Barton), who is the chairman of the Committee on Energy and Commerce, and certainly the words from the gentleman from California (Mr. Dreier), the chairman of the Committee on Rules, in talking about how this excites America and workers to achieve not only dedication and hard work, but also encourages biotech firms.
I think this is exciting. I think this is the right thing. I think this is what Congress should be doing in the leadership of the gentleman from Texas (Mr. DeLay) and the gentleman from Illinois (Mr. Hastert) to make sure this kind of legislation consumes our time, is important to America and our future.
In 2002, nearly 15 million Americans held stock options, about 13 percent of private sector workers nationwide. About 85 percent of the existing stock options are held by nonmanagement workers. This is a whole lot to do about allowing people who get up and go to work every day, Mr. Speaker, who care about not only this country and about their families, but this offers them to protect that nest egg that grows.
I am proud of what the Republican Party is doing by bringing this legislation to the floor. I am equally as proud that it is bipartisan, because it is doing the right thing for people, and I stand in support of this, encourage my colleagues to support the underlying legislation in the rule.
Mr. Speaker, I yield back the balance of my time, and I move the previous question on the resolution