WASHINGTON -- Stock options have suddenly become apolitical football. On Wednesday, the Financial AccountingStandards Board (FASB), an independent agency whosepronouncements are recognized by the Securities and ExchangeCommission (SEC) issued an exposure draft -- tantamount to aproposed regulation -- that would require companies toaccount for stock options as salary.

On Tuesday, Sen. Joseph Lieberman, D-Conn., introduced a billthat would counter FASB's proposal.

Ken Gluck, a legislative aide to Lieberman, implied that FASBacted because large, established companies have beenproviding huge payments to executives through stock options,which they don't have to account for as compensation. "A lot ofthis gets caught up in the issue of excess," said Gluck. "Clearly,we've got some standards to apply in the Fortune 500companies."

But for growing companies that have yet to become profitable,the offer of stock options is a way to lure talented peoplewithout having to break the bank to pay for them.

If FASB's proposal passes, every dollar an employee earnsthrough stock options would have to be subtracted from thecompany's bottom line, just as salary is.

This would artificially reduce the value of earnings per share,but it would not change a company's real financial position. "Ifyou are a sophisticated user, such as a venture capitalist, itmakes little difference," Terry Lloyd, a manager at Ernst &Young in San Francisco, told BioWorld. But "a lot of peoplearen't that sophisticated and tend to look at earnings per shareas some kind of real benchmark. Lenders, investors, potentialemployees and suppliers might all be scared away.

"A lot of trade associations and small company organizationsare banding together to fight (the proposal)," Lloyd toldBioWorld. After a three-month public comments and meetingperiod, the seven-member FASB board will decide whether toincorporate the feedback. Its decision will probably take effectin 1994, Lloyd said.

Sen. Lieberman's proposal would direct the SEC to maintaincurrent accounting methodology, Gluck told BioWorld. It wouldalso create a third class of stock options that would delaytaxation of options earnings from the time of exercising theoptions to the time the stock is sold. Sale earnings of employeeswho hold the stock for at least two years would be exemptfrom 50 percent of capital gains. Fifty percent of such optionsissued would have to go to non-highly compensated employees.

Comments on the proposal may be addressed to FASB, 401Merritt 7, P.O. Box 5116, Norwalk, Conn. 06856.

-- David C. Holzman Washington Editor

(c) 1997 American Health Consultants. All rights reserved.