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Washington, DC -- Today Congressman David Wu continued his fight for common sense fiscal accountability and economic growth by voting for the Stock Option Accounting Reform Act (H.R. 3574). The Stock Option Accounting Reform Act, of which Congressman Wu is a cosponsor, blocks implementation of a proposed accounting rule that would require firms that provide employees with options to buy company stock to deduct the value of the stock options from their reported profits. Instead, H.R. 3574 requires the deduction of only stock options provided to the five highest paid executives, and mandates a study of the economic impact of "expensing" all stock options.
"I believe that the mandatory expensing of employee stock option plans could impair economic growth," said Congressman David Wu. "Not only do such expensing proposals lack a clear and widely accepted accounting rationale, they can paint an incomplete, misleading picture of a corporation's finances. Moreover, they run the risk of jeopardizing a company's ability to offer stock options for its employees."
Companies use stock options in lieu of cash salary to employees. Financial statements prepared in accordance with generally accepted accounting principles do not require companies to record compensation expense for options given. The transaction is treated as a capital transaction and not as an income generating transaction. The IRS allows companies to deduct the expense from taxable income when the stock option is exercised.
"I am strongly supportive of stock option plans, which are a great way for companies to attract and retain employees," said Congressman David Wu. "Employee stock ownership motivates workers and can create a positive relationship between management and workers, where both reap rewards for successful company performance."
The House passed H.R. 3574 by a vote of 312 to 111.
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