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The Employee Ownership Update

Corey Rosen

April 4, 2002

(Corey Rosen)

Stark Introduces House Version of Levin-McCain Options Bill

Fortney Stark (D-CA) has introduced the House version of the "Ending the Double Standard for Stock Options Act," a bill that mirrors the Senate bill of the same title (S. 1940) introduced by Senators Carl Levin (D-MI) and John McCain (R-AZ). The bill has two principal provisions:
  1. Companies cannot claim a tax deduction for options unless they have previously recognized an expense on their income statement for those options.
  2. The research and development tax credit for compensation paid as options can only be claimed to the extent that the company takes a tax deduction for options exercises that year.

The bill would mean that companies would have to find a way to expense options that is consistent with generally accepted accounting principles, such as SFAS 123, prior to the time that options exercises generate a tax deduction for the company. The company's deduction could not exceed the charge to income it had shown for those options in prior years. The bill does not explain how deductions taken for option exercises would be matched to previously declared expenses.

Observers give the bills more of a chance than when they were introduced in 1998, but still predict an uphill battle. Meanwhile, Senator Lieberman (D-Ct) has indicated he will oppose requiring companies to account for options on their income statements, but may propose legislation that would encourage employers to provide broader options while setting stricter limits on how executives could exercise options.

New Report on Employer Stock in 401(k) Plans

A new report from the Democratic Policy Committee in the U.S. Senate shows that 40% of Fortune 50 corporations had employer stock in their plans. Seventeen of the companies had more than 50% of their assets invested in company stock. Procter & Gamble heads the list, with 94.7%, followed by General Electric (77%), Morgan Stanley Dean Witter (77%), McKesson (72%), Home Depot (72%), and Albertsons (71%).

Lawsuits Proliferate on Employer Stock in 401(k) Plans

More lawsuits are being filed against companies that has substantial amounts of employer stock in their 401(k) plans. In addition to several suits against Enron executives, accountants, and plan fiduciaries, there are lawsuits against Lucent, Global Crossing, Williams Companies, Rite-Aid, Qwest, and Nortel. In each case, the plaintiffs allege that the company provided misleading information about its financial condition, often urging employees to buy or hold company stock at the same time executives were selling.

Time Article Highlights Employee Ownership Success

The April 8 issue of Time features a story titled "We're All the Boss," highlighting how "giving workers stock helps a firm only if it also gives them a say." The story reflects NCEO research on the impact of employee ownership on employee and corporate success with employee ownership. The story is available online at Time's Web site.

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