From the SEC, in an announcement yesterday:
The Securities and Exchange Commission announced today the adoption of a new rule that amends the compliance dates for Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement No. 123R).Under Statement No. 123R, registrants would have been required to implement the standard as of the beginning of the first interim or annual period that begins after June 15, 2005, or after Dec. 15, 2005 for small business issuers. Calendar year-end companies that are not small business issuers, therefore, would have been permitted to follow the pre-existing accounting literature for the first and second quarters of 2005, but required to follow Statement No. 123R for their third quarter reports.
The Commission's new rule allows companies to implement Statement No. 123R at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005, or Dec. 15, 2005 for small business issuers. This means, for example, that the financial statements for a calendar year-end company do not need to comply with Statement No. 123R until the interim financial statements for the first quarter of 2006 are filed with the Commission. The financial statements for a company, other than a small business issuer, with a June 30 year-end, however, must comply with Statement No. 123R when the interim financial statements for the quarter beginning July 1, 2005 are filed with the Commission.
From PlanSponsor.com: "SEC Makes it Official: FASB 123 Implementation Date Moved Back Again."
Also, from the Wall Street Journal: "SEC OKs Delay In Options Expensing." Excerpt:
Don Nicolaisen, the SEC's chief accountant, cited concerns that companies were already struggling to cope with a new congressionally mandated internal controls reporting requirement. Officials also hoped to bring consistency to financial statements that might otherwise have relied on varying options-expensing standards within a single fiscal year.
Today's Wall Street Journal is reporting that the SEC intends to delay the implementation date for FASB's option expensing rule:
An announcement of the SEC's decision could come as early as this week . . The new rules by the Financial Accounting Standards Board, which require companies to include employee stock-option compensation as an expense on their earnings reports, currently are set to take effect for fiscal quarters starting after June 15. The SEC's staff has recommended that SEC commissioners vote to change the deadline, so that the rules instead would take effect for fiscal years starting after June 15.
The SEC has issued some guidelines providing its views regarding the valuation of share-based payment arrangements for public companies. You can access the press release here as well as Staff Accounting Bulletin No. 107, "Share-Based Payment," (SAB 107) here.
A Wall Street Journalarticle--"SEC Issues Guidelines For Options Expensing"--reports:
The SEC staff reaffirmed the new rule for stock options issued by the Financial Accounting Standards Board, the private Connecticut-based standard-setter. Industry groups welcomed the SEC's guidance but called for delaying the new accounting rule, set to take effect starting June 15.
Also, from BusinessWeek Online: "SEC Gives Leeway in Measuring Option Value."
Yesterday, FASB issued some long-awaited stock option expensing rules. The news release is here and the full text of FASB Statement 123 (revised 2004) Share-Based Payment is here [pdf]. The press release states that approximately 750 public companies in the U.S. are already "voluntarily applying Statement 123?s fair-value-based method of accounting for share-based payments or have announced plans to do so."
PlanSponsor.com has a good article here.
In a previous post here, I discussed how, in FASB's meeting on Wednesday, February 11, 2004, it was decided that "companies should book the amount of federal subsidy they expect to receive under the Medicare Act as a reduction of future benefit costs -- instead of as a stream of income from continuing operations." A friend who understands more than I do all of what is really going on in the accounting world with all of these recent developments has written:
Minor observation on the FASB meeting on Wednesday: I'm not sure that it yet has any practical effect. In January FASB had decided (FAS 106-1) that employers could elect either immediate implementation of accounting for the Medicare Part D special subsidy or else await the final conclusions of FASB's project to determine the correct accounting for that element. Any employer that elected immediate implementation must of course know that when FASB concludes its current project, then reversal or adjustment of the earlier accounting might be required; but I'm not sure FASB intends that an employer who moved with early adoption must change anything based on interim decisions within that FASB project. Thus, if an employer elected early adoption, then even if the employer and its accountant felt (as some may have) that the subsidy was outside the scope of SFAS 106, the most that this first step in FASB's follow-through project would do would be to put the employer on early alert of a change that will be necessary upon completion of the FASB project, which might not occur for another year or so.
Also, this from AccountingWeb.com: "FASB Sets New Rules for Cash-Balance Benefits." As stated in the article, last week FASB also adopted a definition for cash-benefit pension plans:
A cash-balance pension plan is a defined-benefit pension plan (as defined in the Glossary of Statement 87) that defines the promised employee benefit by reference to a notional account balance. An employees' notional account balance is increased with periodic notional principal credits and notional fixed or variable interest or investment credits, and may be increased for other notional ad hoc credits. Upon separation of employment, for any reason, by a fully vested employee, the employee is entitled to the notional account balance as either a lump sum or an actuarially equivalent annuity either immediately or at a future date. Subject to the terms of the pan or regulatory requirements, an employee may be entitled to a settlement amount greater than the notional account balance due to the crediting of future interest (or investment) credits that are not conditioned upon future service.FASB is formally reviewing rules governing the way companies measure cash-balance benefits.
Also, businesses that follow international accounting standards will have to start treating stock options as an expense, under a new rule issued today by the International Accounting Standards Board. You can access the press release issued by the IASB here entitled "IASB Issues Standard on Share-based Payment." Articles on the development:
(More on the stock option expensing debate here.)
Finally, Tech Central Station has this op-ed: "Green Eyeshade Killers." James Glassman writes:
Candidates are obsessed with "outsourcing," the alleged loss of tech jobs overseas. . . There's a far, far more dangerous threat to our global preeminence in technology. It involves an accounting change. Don't touch that dial! Accounting is boring, but this is important. Your job may depend on it."
"Delay on options expense could cost companies dearly": Craig Gunsauley for BenefitsNews.com reports. According to a study by Buck Consultants, a client's best strategy may be to voluntarily account for the cost of options this year before FASB releases its standards since, after Dec. 31st, FASB will likely require companies to retroactively account for past stock option awards and restate previous years' financial statements.
Note: A previous post (which you can access here) commented on an article at CFO.com which also discussed the same Buck Consultants study.
Bill Mann for the Motley Fool has a great op-ed on the whole stock option expensing debate: "Begging the Options Question." The article makes the point that the argument that stock options are needed for employee retention purposes makes no sense in industries where lay-offs are common and where jobs are being shipped overseas. Mr. Mann mentions this article at MSNBC detailing the move by some U.S. investment banks "to hire Indian stock analysts in order to reduce research costs." The article states that, by doing so, "J.P. Morgan Chase and Goldman Sachs and others can pay the going Indian rate for analysts, around $25,000 a year, instead of the six-figure salaries commanded by employees performing the same function in New York."
Quote of Note from the MSNBC article--"Banks move analyst jobs to India: Wall Street seeks to save costs on number-crunching tasks": "Alan Johnson, a New York-based compensation consultant said a US employee with an MBA going for an analyst position could make between $100,000 and $145,000 and a college graduate could receive about $65,000. In Mumbai, an MBA can expect about $25,000 and other employees might make half that. Real estate and employee benefit costs are also much cheaper in India."
Today's Federal Register.
More on the IBM Cash Balance Plan Decision:
The Wall Street Journal has an intriguing article today that raises all sorts of questions in my mind: "Memos Sent to IBM Show Awareness Of Pension Moves." (Subscription required.) While I am sure that there are many other ERISA cases where memos/emails from non-lawyer professionals have turned out to be terribly damaging to a defendant's cause, one comes to mind which has been in the news lately. Would these cases have had different results if the defendants' attorney(s) had hired the consultants to do the analysis so that the correspondence would have been protected by the attorney-client privilege?
In another article, Ari Weinberg for Forbes reports: "Pension Plans Wade Into Murky Water." The article quotes James Klein, president of the American Benefits Council, as saying that even though the IBM decision issued last week really "flies in the face of other court decisions," critics of cash balance plans will try to play it for all that is worth. The article suggests plaintiffs' attorneys may attempt to bring more lawsuits in the cash balance plan arena.
Mary Deibel for Scripps Howard News Service via the Albuquerque Tribune also has this article entitled "Pension tension prompts legal fight." The article contains some information regarding the cash balance plans for Verizon and FedEx which give older workers a choice between the old formula and the cash balance plan formula.
Andrea Coombes for CBS Marketwatch reports: "Cash-balance plans under fire: Court ruling against IBM could invalidate all such plans.
On other news:
While hardly anything new could be said about expensing stock options, this article--"Unhatched Chickens"--breathes some new life into a subject we are all tired of hearing about--stock option expensing. The op-ed by Stephen W. Stanton for Tech Central Station says that stock option expensing can be likened to the "mandatory counting of unhatched financial chickens." The article also reports that while William Donaldsen, the SEC's Chairman, is a proponent of stock option expensing, Bush is not.
With all of the worry about retirement plan investment returns, there seems to be a greater focus on controlling plan expenses as was reported about here yesterday and now in this article at 401khelpcenter.com: "What Does Your Plan Really Cost, And How Can You Lower It?"
"In 10 Years, Family & Medical Leave Act Has Transformed Lives, Workplaces": a very interesting article by Kenneth Aaron for Times Union via the International Foundation of Employee Benefits Plans about how the Family and Medical Leave Act has changed the workplace.
The Wall Street Journal also reports: "EEOC Sees Rise in Complaints Involving Intrarace Color Bias." (Subscription required.)
Today's Federal Register.
More on the IBM Cash Balance Plan decision handed down yesterday and reported on here yesterday:
Albert B. Crenshaw for the WashingtonPost.com reports: "Judge Finds Age Bias in IBM Pensions: Experts Say Ruling Could End Other Employers' 'Cash Balance' Plans."
The American Benefits Council has issued a statement on the case. James Klein, ABC's President, states:
"Conversions to cash balance plans are currently the one good thing going on in the defined benefit pension plan system because they demonstrate a commitment by employers to remain within the defined benefit world. Other companies are exiting the system altogether. A decision like this sends one more negative signal to employers that 'no good deed goes unpunished' since it penalizes employers trying to provide their workers with a pension that is funded by the employer and guaranteed by the government, as opposed to requiring workers to rely solely on employee-funded retirement alternatives."You can also access a copy of the case on their website as well.
PlanSponsor.com reports: "Murphy’s Law: IBM Loses Cash Balance Ruling." (One time registration required.)
The Associated Press in this article--"IBM loses lawsuit over pensions: Federal judge rules firm discriminated against older workers at MSNBC.com quotes Mr. Klein as saying that "cash balance plans are 'currently the one good thing going' in an environment where many companies are dropping pension plans altogether and requiring employees to save for retirement on their own."
On other matters:
"FASB vetoes more disclosure on some pension changes.": Reuters reports. The article states that "FASB has agreed that companies do not need to disclose the impact of changes in assumptions used to calculate pension income or costs on earnings, arguing that existing and other proposed disclosure requirements are enough." You can also read about the decision at PlanSponsor.com in this article: "FASB Passes on Pension Assumption Change Reporting."
CFO.com has published this article: "Who Rules Accounting? Congress muscles in on FASB -- again." If you like charts, at the very end of the article is a chart showing the history of the debate over stock option accounting which you can access here.
Benefitslink.com has posted final Internal Revenue Code section 280G regulations (golden parachute). Benefitslink.com also reports the IRS has issued Revenue Procedure 2003-68 which provides guidance on the valuation of stock options solely for purposes of Internal Revenue Code sections 280G and 4999.
Today's Federal Register.
The IRS issued Revenue Ruling 2003-98 which provides guidance concerning the application of section 83 of the Internal Revenue Code where stock options are granted and the company granting the options is later acquired.
The University of Pennsylvania's Wharton School Newsletter has published this article of interest: "Underfunded Pensions: Causes, Cures and Questions."
"Our pension mess could be worse.": the article by Janet McFarland for Globe and Mail talks about how the Canadian "pension plan mess" is better off than the U.S. "pension plan mess." The article highlights how Canadian companies seem to be using more realistic assumptions for future investment returns than U.S. companies.
USA Today reports: "Stock options showdown will affect future of U.S. economy." The article talks about research by economist Stephen Bryant and his colleagues, published in The Journal of Business in October 2000, which found that, unlike options, "restricted stock, due to its linear payoffs, is relatively inefficient in inducing risk-averse CEOs to accept risky, value-increasing investment projects."
Today's Federal Register contains temporary and proposed regulations concerning requirements for employee stock ownership plans (ESOPs) holding stock of S corporations. The regulations provide guidance on identifying disqualified persons and determining whether a plan year is a nonallocation year under Internal Revenue Code section 409(p) and on the definition of synthetic equity under Internal Revenue Code section 409(p)(5).
Several news sources are carrying this Associated Press article today (this one via ABCNews.com): "Don't Fret Over Pension Notice: Don't Immediately Fret Over Notice From Employer of Underfunded Pension."
Stephen Taub for CFO.com provides this report: "Ways and Means of Relieving Underfunded Pensions: Committee's recommendation to full House of Representatives may ''free up cash for other corporate uses.'' The article reports that shortly after the announcement that the Portman-Cardin bill had passed the Ways and Means Committee, Standard and Poor released a statement that its estimate of pension underfunding for the S&P 500 is under review. You can read the press release here. The press release provides:
"If the House approves the proposed three-year use of the high-grade corporate bond rate, which is currently yielding 128 basis points higher than the 30-year Treasury, the amount of pension underfunding among U.S. companies would significantly decrease, resulting in lower corporate contributions to their pension funds. . . This change would free up cash for other corporate uses."
Business Week Online provides this op-ed by Steve Hamm: "Commentary: Expense Options--but Give Startups a Break." The article discusses how FASB is open to creating special rules for Pre-IPO nonpublic companies.
Albert Crenshaw for the Washington Post discusses "bottom-up leveling" in 401(k) plans in this article: "How a 401(k) Loophole for the Rich Can Mean a Windfall for the Poor."
Susan Tempor for the Detroit Free Press writes: "Tax law changes add 401(k) quirks."
Today's Federal Register.
The Boston Globe reports today, regarding Microsoft's decision to end its stock option program: "No rush yet to abandon stock options: Firms that hope to grow see them as worker lure." The article reports that "[w]hile some area technology companies say they are considering a plan to phase out stock options in favor of more stable restricted stock awards, most said they did not plan to change the way they compensate employees in the immediate future."
USAToday, however, reports: "Citigroup doing away with stock options."
Lisa Bowman for CNET News.com writes a very good article discussing the future of stock options via ZDNet.com entitled, "Stock options: End of an era?" The article reports that, based upon an internal memo, Microsoft employees at a certain level--who would normally be given 1,320 options--will get 325 restricted stock awards under the new Microsoft program. The article reports compensation experts as saying that the award is in line with a typical industry ratio of one share grant for every three or four options. In addition, the article quotes Martin Staubus, director of consulting for the nonprofit Beyster Institute for Entrepreneurial Employee Ownership, as stating that companies will increasingly turn to a "smorgasbord of incentives--including options, stock grants, cash and even souped-up retirement plans--rather than follow any single trend as they did with stock options in the 1990s."
Today's edition of the Wall Street Journal provides this article by Matt Murray and Lee Hawkins Jr., regarding House and Senate bills pertaining to Medicare prescription drug benefits: "Employers Will Face Many Choices, Including Trimming or Cutting Out Prescription Programs for Retirees." (Subscription required.) The article reports that the "Congressional Budget Office has estimated that 37% of retirees now covered by a company plan would lose employer-provided drug benefits under the Senate bill, and 31% under the House proposal."
Also, this by Mick Wingfield from the Journal: "Shift in Stock Options May Be At Expense of Accounting Purists." (Subscription required.)
Finally, Alwyn Scott for The Seattle Times via NewsAlert.com has this article: "Some Analysts Fear Long-Term Consequences of Plan to Erase Pension Shortfalls" The article quotes some as saying that the proposed Bush administration pension funding changes (which you can read about here under Benefitsblog's Pension Funding archives) are mere "accounting wizardry" or "hocus-pocus" while others say it is badly needed in this economy to preserve the defined benefit plan as a viable retirement program which companies will be willing to continue.
Today's Federal Register.
The front page of today's edition of the Wall Street Journal has a controversial article by Ellen E. Schultz which you can access online here (with subscription): "Firms Had a Hand in Pension Plight They Now Bemoan: Relying on Arcane Rules, Some Have Drawn Down Assets for Corporate Purposes; Now, Asking Congress for Relief." You can read my comments about the article in a separate post today.
The WSJ is also chock-full of articles discussing Microsoft's announcement to end its stock option program (sorry, links only accessible online with subscription): an op-ed: "Better Shareholder Options", "Cultural Evolution: At Maturing Microsoft Corp., Entrepeneurial Ethos Goes the Way of Stock Options," "Will Options Shift Scare off Good Job Seekers" and "Ballmer Seeks Stability in Stock Awards." Also, there is this article--"The Employee Guide to Restricted Stock"--and these three articles: "Wall Street Hunts for Underwater Options: J.P. Morgan's Deal with Microsoft Likely to Spur Many Firms," "For Now, Workers Have Few Options for their Options" and this--"Microsoft's Reboot: Decision to Restate Earnings is Unusual." Some light reading for those summer evenings if you don't have time for all of that this morning. . .
The Washington Post has this op-ed--"Welcome Steps on Stock Options." The article suggests that Microsoft's action may be part of a "bigger shift that could herald the end of what the Wall Street Journal called 'the golden age of stock options.'" Another article in the Washington Post by Jackie Spinner and Kirstin Downey here: Tech Firms' Options Fight Loses Steam: Microsoft Move May Doom Attack on Rule."
The Associated Press for the Detroit Free Press reports: "DaimlerChrysler might abandon stock options."
"Even as Microsoft Corp. abandons the practice, many technology startups need the allure of stock options to attract talented - and risk-taking - workers who otherwise might opt for more established companies": that's what this article by Paul Elias for the Seattle Post has to say--"Stock options common in Silicon Valley." SFGate.com also reports: "The impact of switching from options to shares: Loss of stock options won't change Silicon Valley's mentality."
On the other hand, Gary Strauss and Michelle Kessler for USAToday have this to say: "Stock options on their way to passé?"
UPDATE: Mike Sullivan at CorpLawBlog provides this discussion and a later update regarding the details of how the sale of underwater options to J.P. Morgan will be structured. Broc Romanek's blog in today's post also discusses the issue as well as the possible tax consequences.
There are multiple articles today about Microsoft's announcement that it is abandoning its stock option program and will begin awarding its employees actual shares of restricted stock instead:
The front page of the Wall Street Journal also reports: "Microsoft Ushers Out Era of Options: Software Giant Exchanges Symbol of Bull Market For Restricted Stock." The article discusses how Microsoft employees will have the opportunity to sell their nearly worthless "underwater" options which they already hold, in an arrangement with J.P. Morgan Chase & Co. The article quotes Microsoft CEO Steve Ballmer as saying in an interview that grants of restricted stock will prove more valuable to employees than options at a time when Microsoft shares are unlikely to rise as rapidly in value as they did in the 90's.
Mike O'Sullivan at CorpLawBlog has a more extensive post yesterday and today on the Microsoft news.
All of this comes at the same time as a ruling from an advisory group of FASB as reported in the Philadelphia Inquirer: "Board rules options can be easily valued." The Board's nine-member Option Valuation Group yesterday "rejected arguments from computer companies that forcing stock-option expenses to be deducted from earnings would add a volatile element to financial statements because it was impossible to determine their value." The article reports Standards board chairman Robert Herz as saying that the "data needed to value employee stock options is accessible . . .and can be precise."
CFO.com offers this article--"Expensing Options: Better Now Than Later: Study claims many companies will be hurt by waiting for FASB to act?"--by Lisa Yoon. The article refers to a study by Buck Consultants which you can read about here. The study reports on the negative impact of the "wait and see" approach to stock option expensing. According to this press release, the study has this finding:
"High technology companies forced to adopt stock option expensing guidelines in 2004 will experience a median decrease in fiscal year 2003 earnings per share (EPS) of approximately 20 times greater than companies that voluntarily adopt these guidelines before a December 2003 deadline."CFO.com's article makes a good point though about the pending legislation which would put a three year moratorium on stock option expensing if the legislation ever makes its way through Congress. You can read about this legislation here.
More about stock option expensing here . . .
VentureBlog has this discussion about stock option expensing.
Today's Federal Register is here.
"Avoiding Pension Plan Time Bombs": this article by Fei Mei Chan for Forbes.com discusses the pension plan funding issues facing S&P 500 companies.
Vinod Khosla speaks out for stock option expensing in this article for SiliconValley.com: "Expensing options at big firms could boost innovation at startups."
AccountingWeb.com reports on congressional support for the "Broad-Based Stock Option Plan Transparency Act" which was introduced in March by Rep. David Dreier (R-Calif.) and Rep. Anna Eshoo (D-Calif.): "Congress Gains Support in Stock Option Fight."
This article by John Snow for the Business Journal--"Humana rolls out swipe card"--reports that Humana Inc., in conjunction with Evolution Benefits Inc., MasterCard International and BankFirst, is offering a combined identification card and prepaid MasterCard for accessing funds in flexible spending accounts. The new program takes advantage of a recent ruling by the Internal Revenue Service, Revenue Ruling 2003-43 (via Benefitslink), which "blesses" such programs. (The ruling was discussed in previous posts here.) The article reports Humana Inc. as stating that a 60% increase in flexible spending account enrollment occurred as a result of adopting the "swipe card" program.
The PBGC provides this Interest Rate Update.
This CCH article discusses comments made by Don McPartland of the IRS's Large and Mid-Size Business (LMSB) Division during the IRS Research Conference held in Washington, D.C. on June 11: "Stock Options in Cost-Sharing Arrangements Represent Dilemma for IRS." The article highlights the complexities with stock option expensing for foreign-based operations.
This article by Matt Marshall for the MercuryNews.com: "Top VC at odds with valley on options." The article reports that Vinod Khosla, a very prominent and successful venture capitalist, has broken ranks with the rest of Silicon Valley and come out in favor of stock option expensing. He argues that requiring companies to expense stock options would "level the playing field for young private start-ups that he says are so important to the nation's economy."
Bloomberg.com reports here: "Intel, Dell May Award Fewer Options, More Cash to Pay Workers."
And "The battle heats up over stock options" reports Paul Taylor for FT.com. The article points out the tension between FASB's accounting proposals which would make stock options less appealing to employers and the tax advantages of stock options brought about by JAGTRRA.
Today's edition of the Wall Street Journal has a very good article about a shareholder proposal for Siebel Systems, Inc., submitted by TIAA-CREF, that advocates stock options issued to Siebel senior executives be tied to the company's performance. The article describes the battle that has been waged by TIAA-CREF over the proposal which will be voted on today. Another article at CBSMarketWatch.com reports that representatives of the American Federation of State, County and Municipal Employees union pension plan are picketing outside the shareholder meeting site today to register their complaints against Siebel's stock option compensation for executives.
Watson Wyatt has posted an article with some interesting thoughts on the stock option accounting problem: "New Study on Disclosure of Stock Option Expense: Substance Matters More Than Form." The article suggests that FASB's proposals to expense stock options may not have the downward effect on stock prices that has been widely predicted. The article also suggests that companies look at alternatives to stock options, such as restricted stock, performance-based shares and management stock purchase plans (MSPP). Another article by Watson Wyatt looks at nonqualified plans and discusses the provisions governing these types of plans that were part of the Senate version of the Jobs and Growth Tax Relief Reconciliation Act before the provisions were dropped from the bill. The article suggests that the provisions have support from both the House and the Senate and may make it into legislation by the end of the year.
CFO.com has this article--" Stock Option Standoff: Bill would place three-year moratorium on revising employee stock option accounting; angry Herz says the move could impair FASB's independence"--by Craig Schneider. According to the article, HR 1372, "The Broad-Based Stock Option Plan Transparency Act" introduced by Rep. David Dreier (R-Calif.) and Rep. Anna Eshoo (D-Calif.) in March has gained nine new co-sponsors, since the hearing on the subject (discussed here) last week, bringing the total backers for the bill to 44. The article reports FASB Chairman Robert Herz as saying that intervention by Congress would appear to be inconsistent with the language and intent of the Sarbanes-Oxley Act and the related SEC Policy Statement, both of which were intended to enhance the independence of FASB. It also reports SEC Chairman William Donaldson as opposing legislation by Congress.
What do you think about the whole subject? Smart Pros provides this article--"The Accounting Cycle Here They Go Again! More political attempts to thwart good accounting"--by Edward Kertz. You can take a poll at SmartPros by clicking here.
This article at SeattleTimes.com by Mark Schwanhausser--"Accounting rules threaten worker stock-buying plans"--highlights how FASB's proposals to expense stock options might be the death knell for employee stock purchase plans ("ESPPs"). The article reports that 10 to 15 million workers could potentially lose their benefits under these types of plans, if FASB's proposals are adopted, and that executives at companies are re-examining their ESPPs to determine the effect that ESPPs could have on profits. One bank executive apparently learned, according to the article, that the bank's ESPP could potentially wipe out $20 million in profits under the proposed accounting changes.
Today's Federal Register is here. This article by Craig Schneider--"Congress, FASB in Stock Option Flap: Dreier-Eshoo bill would prevent expensing of stock options -- and derail FASB initiative"--at CFO.com points out that tomorrow morning, the House Financial Services Capital Markets Subcommittee will hold a hearing on HR 1372, the Broad-Based Stock Option Plan Transparency Act, a bill which was introduced by Reps. David Dreier (R-Calif.) and Anna G. Eshoo (D-Calif.) on March 20. The bill would require greater disclosure of corporate stock options, but would commission a three-year study on the effects of such disclosure. During the study, new accounting standards would not be recognized which would delay any changes promulgated by FASB. Also, see this article at the WashingtonPost.com by Jackie Spinner: "Executives Resigned To Their Options: Change in Accounting Rules Would Cost Some Local Companies."
401(k) plans are "tiptoeing back into stocks" as reported in this article by John Waggoner and Christine Dugas for USA Today (via Yahoo! News). The article states that the 401(k) Index from Hewitt Associates, which tracks 1.5 million participants, indicates investors moved into stocks for 14 out of the 21 trading days in April which was the first time since January of 2000 that the Index recorded so many days in which investors shifted 401(k) assets into stock funds.
There is a very good article at Workforce.com showing trends in executive compensation. The article--"Executive Compensation: Recent Trends, Changes, and Highlights" discusses the results of a study performed by Sibson Consulting, the human-capital consulting division of The Segal Company, which reviewed a random sampling of large-company proxy statements filed with the SEC. The article contains tables showing the executive compensation provided by various companies, such as Merck and Eastman Kodak.
Today's Federal Register is here. Elizabeth MacDonald for Forbes Magazine reports via Yahoo! News.com: "Pension Pangs: Some big companies are in for an earnings jolt when they own up to the reality of rotten pension fund performance."
Reuters has reported that the House Subcommittee on Capital Markets will hold a hearing, entitled "The Accounting Treatment of Employee Stock Options," on June 3, 2003.
Louis Lavelle for Business Week Online offers this commentary: "Shareholders Unite to Expense Options."
Benefitslink.com points us to this insightful article by Accounting Today--"GAAP for pensions: Sanctioned fraud must go"--and this article by Fred Reisch for PlanSponsor.com--"Doing Well While Doing Good"--which talks about the selection of socially responsible funds as an 401(k) plan investment option.
TRI Pension Services reports in its Recent Developments on the Field Assistance Bulletin issued by the DOL regarding allocation of expenses to participants and also reports on the new deemed IRA regulations.
Today's Federal Register is here. The MotleyFool.com and the Wall Street Journal have pointed us to the fact that Alan Greenspan will soon be appearing in television ads pointing us to FederalReserveEducation.org and advocating better financial education for Americans. "No matter who you are, making informed decisions about what to do with your money will help build a more stable financial future for you and your family," Mr. Greenspan says on the home page of the website. Hidden within the pages is this insightful graph showing the decline in personal savings rates of Americans from 1959 to 2001. Another article in a similar vein from the Wharton School of the University of Pennsylvania: "Will Baby-Boomers? Retirement Years Go Bust from a Lack of Savings?"
Matthew Yi with the San Francisco Chronicle at SFGate.com reports on the recent defeat of a shareholder proposal to expense stock options at Intel. The results were close with 47.55% of shareholders voting in favor of the proposal. The article quotes Mark Rubenstein, a professor at UC Berkeley's Haas School of Business, as saying that stock option expensing will have minimal effect on a company's share price for reasons explained in the article. Also, Chris Gaither with the Boston Globe at Boston.com has this to say: "High-tech firms cut stock options."
Today's Federal Register is here. Regarding the Senate Commerce Committee's hearing yesterday, Kevin Drawbaugh for Reuters offers this report: "Senators Clash on Stock Options, Probe CEO Pay." In addition, the Washington Post provides this op-ed on the subject--"No Accounting for Politics"--and Carlos Campos for the Atlanta Journal-Constitution has this to say: "McCain warns CEOs on pay."
Michael Liedtke of the Associated Press via the DenverPost.com offers this report: "Firms resist treating stock options as expenses." The article contains some interesting graphs showing the effect stock option expensing would have on the earnings of certain key companies. According to the article, Intel's shareholders will vote tomorrow on the issue.
The Federal Register is here. Today, the House of Representatives passed an Enron-inspired pension bill, H.R. 1000 (called the "Pension Security Act of 2003") which is outlined on the ASPA website here. USAToday reports on the bill. There are a multitude of articles on stock option expensing:
SocialFunds.com "Investors Press Companies on Stock Option Expensing"
Forbes.com "Siebel Investors Urge Compensation Changes"
Silicon Valley Bizink "AFP Participates in Senate Roundtable On Stock Option Expensing"
C/netnews.com "Microsoft: Options Expensing Would Trim Profits"
CFO.com reports that "FASB Holds Fast on Options." The article discusses the Washington, D.C. roundtable, "Preserving Partnership Capitalism Through Stock Options for America's Workforce" which met last week to protest FASB's decision to expense stock options. FASB is scheduled to convene again on June 4th to continue its deliberations. Meanwhile, CFO.com also reports Dell has plans to swap out its stock option compensation packages for certain senior execs with cash bonuses.
Today's Federal Register is here and contains the new split-dollar life insurance regulations. Seyfarth Shaw has published an analysis of Revenue Ruling 2003-43 (approves credit and debit cards for flexible spending accounts) which comes out soon. The Mercury News at Siliconvalley.com and the Financial Times at FT.com have some inside scoop on the ongoing debate over expensing stock options. An article by BusinessWeek Online predicts the Feds are signaling they will lower interest rates again.
Today's Federal Register is here. More articles on FASB's attempt to develop rules for stock option accounting: the Boston Globe and CNNMoney report on this. Also, another article on Blue Collar Worker mortality by the Associated Press at Yahoo News. Note that the Associated Press has reported via Yahoo News here that Charles Schwab Corp. has joined the ranks of the growing number of companies which are eliminating their 401(k) match.
Reuters reports here that FASB, in its meeting today, determined that companies should be able to reverse a stock option expense on their books that relates to options later forfeited by employees. FASB is trying to tackle the task of how to value stock options, now that it has determined that they should be expensed. (Earlier post on this issue here.)
An article in the Las Vegas Sun indicates Senators John Ensign (R-Nev.) and Barbara Boxer (D-Calif.) have announced plans to introduce the 2003 Broad-Based Stock Option Plan Transparency Act which would take aim at FASB's recent decision to expense stock options. The bill will call for better disclosure of company employee stock option plans on corporate financial statements and would prohibit SEC recognition of any new accounting standard on stock options. Here is a critical response by Bill Mann of the Motley Fool to the upcoming proposed legislation. Another article by Bill Fleckenstein at MSN.com recommends expensing at the time the options are exercised.
The Financial Accounting Standards Board voted April 22, 2003 to require companies to treat their employee stock options as "expenses" on their income statements. Apparently, this move by FASB is only an initial decision that will be followed by a more formal proposal later this year. Under curent rules, companies can either choose to disclose the theoretical value in footnotes or treat the value of options as a compensation expense in their income statements. After Enron, many companies have already voluntarily agreed to expense options on their income statements. The problem seems to be how to value the options and critics of this decision by the Board say that this change in accounting treatment will make financial statements less reliable because of the difficulty in coming up with an identifiable value for the options.