On March 20, Congressman David Dreier (R-CA), Chairman of the House Rules Committee, and Congresswoman Anna G. Eshoo (D-CA) introduced, H.R. 1372, the "Broad-Based Stock Option Plan Transparency Act of 2003." (Link to Bill) The legislation will ensure that investors have accurate and meaningful information about a company's use of employee stock options, whether they are given to high-level executives or lower level workers.

The National Venture Capital Association (NVCA) applauds the introduction of this bill and offers its energetic support for this important legislation. (NVCA letter)

The use of stock options is a hallmark of the US venture capital industry and has been a key determinant of its success. In using this tool, venture capitalists encourage innovation and entrepreneurship so that everyone involved—founders, employees and venture capitalists—is successful when the company is successful. There is no comparable alternative tool for these firms to convince talented workers to take on the enormous risks of leaving a stable job at a large company to join a promising start-up.

At a time when many have erroneously equated stock options with corporate governance abuses, this bill focuses on the true issue at stake: providing an increased flow of meaningful information to investors while continuing to promote the use of broad-based stock option plans. NVCA believes that expensing options under the currently available valuation models would be a disservice to investors -- leading to misleading numbers and lack of transparency on financial statements. Instead, this legislation promoting rational alternatives to expensing such as enhanced disclosure of all options issued would actually provide for better corporate governance and better information for investors without inaccurately distorting the financial income statement.

H.R. 1372 directs the Securities and Exchange Commission (SEC) to require, by rule, enhanced reporting disclosures of all employee stock options given by publicly-traded companies. Additionally, the SEC would not be permitted to recognize any new accounting standard related to stock options until they have submitted a report to Congress on the effectiveness of the new disclosures, following a three year period of study. The bill would also require that the Secretary of Commerce spend a year studying the impact of broad-based employee stock option plans in expanding corporate ownership, recruiting skilled workers, stimulating research and innovation, and growing the U.S. economy.