(This measure has not been amended since it was reported to the House on July 15, 2004. The summary of that version is repeated here.)
Stock Option Accounting Reform Act - (Sec. 2) Amends the Securities Exchange Act of 1934 to require an issuer of registered securities to show as an expense in its annual report the fair value of all stock purchase options granted after December 31, 2004, to: (1) all individuals serving as the chief executive officer of an issuer, or acting in a similar capacity, during the most recent fiscal year, regardless of compensation level; and (2) the four most highly compensated executive officers (other than a chief executive officer) that were serving as executive officers of an issuer at the end of the most recent fiscal year ("named executive officer").
Defines the fair value of an option to purchase such stock.
Exempts small business issuers from the Act's requirement.
(Sec. 3) Amends the Securities Act of 1933 to prohibit the Securities and Exchange Commission (SEC) from recognizing as "generally accepted" any accounting principle relating to the expensing of stock options unless it complies with both: (1) specified expense recomputation requirements; and (2) a required joint study by the Secretaries of Commerce and of Labor of the economic impact of the mandatory expensing of employee stock options.
Requires the recomputation and re-reporting of the expense of a stock purchase option that is exercised, to equal the difference between the price of the underlying stock and the exercise price.
Requires the re-reporting as a reduction of the total expense originally required to be reported if the option expires or is forfeited.
(Sec. 4) Directs the SEC to require each issuer to include in its periodic report more detailed information regarding stock option plans, stock purchase plans, and other arrangements involving an employee acquisition of an equity interest in the company, including: (1) a discussion, written in accordance with the Plain English Handbook published by the SEC Office of Investor Education and Assistance on the dilutive effect of stock option plans; (2) expanded disclosure of the dilutive effect of employee stock options on the issuer's earnings per share; (3) prominent placement and increased comparability and uniformity of all stock option related information; (4) the number of outstanding stock options; (5) the weighted average exercise price of all outstanding stock options; and (6) the estimated number of stock options outstanding that will vest in each year.
[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3574 Introduced in House (IH)]
108th CONGRESS
1st Session
H. R. 3574
To require the mandatory expensing of stock options granted to
executive officers, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
November 21, 2003
Mr. Baker (for himself, Ms. Eshoo, Mr. Dreier, Mr. Kennedy of
Minnesota, Mr. Honda, Mrs. Tauscher, Ms. Lofgren, and Mr. Cantor)
introduced the following bill; which was referred to the Committee on
Financial Services
_______________________________________________________________________
A BILL
To require the mandatory expensing of stock options granted to
executive officers, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Stock Option Accounting Reform
Act''.
SEC. 2. MANDATORY EXPENSING OF STOCK OPTIONS HELD BY HIGHLY COMPENSATED
OFFICERS.
Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m)
is amended by adding at the end the following:
``(m) Mandatory Expensing of Stock Options.--
``(1) Named executive officer.--As used in this subsection,
the term `named executive officer' means--
``(A) all individuals serving as the chief
executive officer of an issuer, or acting in a similar
capacity, during the most recent fiscal year,
regardless of compensation level; and
``(B) the 4 most highly compensated executive
officers, other than an individual identified under
subparagraph (A), that were serving as executive
officers of an issuer at the end of the most recent
fiscal year.
``(2) In general.--Subject to paragraph (4), every issuer
of a security registered pursuant to section 12 shall show as
an expense in the annual report of such issuer filed under
subsection (a)(2), the fair value of all options to purchase
the stock of the issuer granted after December 31, 2004, to a
named executive officer of the issuer.
``(3) Fair value.--
``(A) In general.--The fair value of an option to
purchase the stock of the issuer that is subject to
paragraph (2) shall be--
``(i) equal to the value that would be
agreed upon by a willing buyer and seller of
such option, who are not under any compulsion
to buy or sell such option; and
``(ii) shall take into account all of the
characteristics and restrictions imposed upon
the option.
``(B) Pricing model.--To the extent that an option
pricing model, such as the Black-Scholes method or a
binomial model, is used to determine the fair value of
an option, the assumed volatility of the underlying
stock shall be zero.
``(4) Exemptions.--
``(A) Small business issuers.--This subsection
shall not apply to an issuer, if--
``(i) the issuer has annual revenues of
less than $25,000,000;
``(ii) the issuer is organized under the
laws of the United States or Canada;
``(iii) the issuer is not an investment
company (as such term is defined under section
3 of the Investment Company Act of 1940 (15
U.S.C. 80a-3));
``(iv) the aggregate value of the
outstanding voting and non-voting common equity
securities of the issuer held by non-affiliated
parties is less than $25,000,000; and
``(v) in the case of an issuer that meets
the criteria in clauses (i) through (iv) and is
a majority owned subsidiary, the parent of the
issuer meets the requirements of this
paragraph.
``(B) Delayed effectiveness.--The requirements of
this subsection shall not apply to an issuer before the
end of the 3-year period beginning on the date of the
completion of the initial public offering of the
securities of the issuer, and shall only apply to an
option to purchase the stock of an issuer granted after
such date.''.
SEC. 3. PROHIBITION ON EXPENSING AND ECONOMIC IMPACT STUDY.
(a) Prohibition.--Section 19(b) of the Securities Act of 1933 is
amended by adding at the end the following:
``(3) Prohibition on expensing standards.--
``(A) In general.--The Commission shall not
recognize as ``generally accepted'' any accounting
principle established by a standard setting body
relating to the expensing of stock options unless--
``(i) it complies with the requirements of
subparagraph (B); and
``(ii) the economic impact study required
under section 3(b) of the Stock Option
Accounting Reform Act of 2003 has been
completed.
``(B) Requirements.--A standard referred to in
subparagraph (A) shall require that--
``(i) if an option to purchase the stock of
an issuer that is subject to the requirements
of section 13(m) of the Securities Exchange Act
of 1934 is exercised, forfeited, or expires
unexercised, any expense that had been reported
under that section 13(m) with respect to such
option shall be reported in the fiscal year in
which the option expires or is forfeited as a
reduction of the total expense required to be
reported under that section 13(m) during that
fiscal year; and
``(ii) to the extent that any reduction
required under clause (i) exceeds total option
expenses for any fiscal year, such excess shall
be reported as income with respect to options
to purchase the stock of the issuer.''.
(b) Economic Impact Study.--The Secretary of Commerce and the
Secretary of Labor shall conduct and complete a joint study on the
economic impact of the mandatory expensing of all employee stock
options, including the impact upon--
(1) the use of broad-based stock option plans in expanding
employee corporate ownership to workers at a wide range of
income levels, with particular focus upon non-executive
employees;
(2) the role of such plans in the recruitment and retention
of skilled workers;
(3) the role of such plans in stimulating research and
innovation;
(4) the effect of such plans in stimulating the economic
growth of the United States; and
(5) the role of such plans in strengthening the
international competitiveness of businesses organized under the
laws of the United States.
<all>
Rule provides for consideration of H.R. 3574 with 1 hour of general debate. Previous question shall be considered as ordered without intervening motions except motion to recommit with or without instructions. Measure will be considered read. Specified amendments are in order.
House resolved itself into the Committee of the Whole House on the state of the Union pursuant to H. Res. 725 and Rule XVIII.
The Speaker designated the Honorable Tom Latham to act as Chairman of the Committee.
GENERAL DEBATE - The Committee of the Whole proceeded with one hour of general debate on H.R. 3574.
DEBATE - Pursuant to House Resolution 725, the Committee of the Whole proceeded with ten minutes of debate on the Oxley amendment.
DEBATE - Pursuant to House Resoultion 725, the Committee of the Whole proceeded with ten minutes of debate on the Sherman amendment.
POSTPONED PROCEEDINGS - At the conclusion of debate on the Sherman amendment, the Chair put the question on adoption of the amendment and by voice vote, announced that the noes had prevailed. Mr. Sherman demanded a recorded vote and the Chair postponed further proceedings on the question of adoption of the amendment until later in the legislative day.
DEBATE - Pursuant to House Resolution 725, the Committee of the Whole proceeded with ten minutes of debate on the Maloney amendment.
POSTPONED PROCEEDINGS - At the conclusion of debate on the Maloney amendment, the Chair put the question on adoption of the amendment and by voice vote, announced that the noes had prevailed. Mrs. Maloney demanded a recorded vote and the Chair postponed further proceedings on the question of adoption of the amendment until later in the legislative day.
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DEBATE - Pursuant to House Resolution 725, the Committee of the Whole proceeded with twenty minutes of debate on the Kanjorski amendment in the nature of a substitute.
POSTPONED PROCEEDINGS - At the conclusion of debate on the Kanjorski amendment, the Chair put the question on adoption of the amendment and by voice vote, announced that the noes had prevailed. Mr. Kanjorski demanded a recorded vote and made a point of no quorum. The Chair postponed further proceedings on the question of adoption of the amendment until later in the legislative day and the point of no quorum was considered as withdrawn.
The House rose from the Committee of the Whole House on the state of the Union to report H.R. 3574.
The previous question was ordered pursuant to the rule.
The House adopted the amendment in the nature of a substitute as agreed to by the Committee of the Whole House on the state of the Union.
Passed/agreed to in House: On passage Passed by the Yeas and Nays: 312 - 111 (Roll no. 397).
Roll Call #397 (House)On passage Passed by the Yeas and Nays: 312 - 111 (Roll no. 397).
Roll Call #397 (House)Motion to reconsider laid on the table Agreed to without objection.
The Clerk was authorized to correct section numbers, punctuation, and cross references, and to make other necessary technical and conforming corrections in the engrossment of H.R. 3574.
Received in the Senate.
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.