Bill would bring stock options to more workers

More working Americans could benefit from the type of stock
options that are so ubiquitous in the tech industry under legislation that
was recently introduced.

Rep. John Boehner (R-Ohio), chairman of the House Workforce Employer-Employee Relations
Subcommittee, introduced a bill last week that aims to help rank-and-file
employees better use stock options as a long-term savings vehicle and to
encourage more companies to offer options.

"Employers and employees are beginning to tap into the awesome potential of
employee shareholding, and it's time Washington began to realize its true
potential for our economy," Boehner said in a statement. "If we want to help
Americans build real wealth and financial security in the next century,
Washington needs to recognize this trend and capitalize on it."

Granting stock options to employees is common in the tech industry and
Boehner's bill could broaden their use.

The bill would create a new form of stock option that would combine elements
of traditional "nonqualified" stock options and "qualified," or incentive,
plans. The new stock option would allow employees to defer all taxation on
stocks they purchase until the shares are sold, as workers with qualified
stock options can currently do. The bill also would also allow companies to
deduct the value of stock options granted to employees upon the employee's
exercise of the option, as employers can do with traditional nonqualified
stock options.

The bill's intent is to encourage employees to retain their stock for longer
periods, while encouraging more employers to offer stock options.

"It is a move in the right direction for encouraging a broad-based employee
ownership plan," said Ryan Weeden, a project director at the National Center
for Employee Ownership, a nonprofit organization. The bill stipulates that
the options be available to at least 50 percent of the employees.

The congressman said that the IRS tax code currently discourages workers
from using their stock options as a long-term savings and investment tool.
Employees with stock options take a double tax hit--once when the options
are exercised and converted to shares and again when the shares are sold,
Boehner said.

Many workers exercise their options and sell them immediately. The Boehner
bill hopes to change that by allowing employees to exercise their stock
options and convert them to shares without being taxed. Workers would be
able to defer taxes on the options until they actually sell their shares, at
which point they would be taxed at the applicable capital gains rate.
Employees would be required to hold on to their shares for a minimum of one
year in order to qualify for the new tax treatment.

"The intention of a lot of plans is to get employees wrapped up and acting
and thinking like shareholders, thinking about how their actions are going
to affect the company's profitability and performance," Weeden said. "I
think you would see institutional investors and other shareholder groups
finding stock options plans based on this bill more palatable."

The bill is still a long way from being enacted as law, as Congress is in
recess until January.

The bill is clearly aimed at nonexecutive employees, and includes a series
of provisions to safeguard employees who receive stock options. The
legislation would prevent employers from cutting their salaries and payroll
and offering stock options as a substitute for direct cash compensation.
Among other precautions, the bill also will require that options be shares
that are traded on exchanges regulated by the Securities and Exchange
Commission.

"I don't think it will have much of an impact on how stock options are
treated in Silicon Valley but it could affect how mainstream companies
perceive them," said Don M. Chance, a professor of finance at Virginia Tech,
Pamplin College of Business.


"When you talk about Silicon Valley, you're talking about a real exception
to how stock options are used," Chance said. "If this bill can get
[stock options] into the mainstream, I think it would be good idea."