To direct the Securities and Exchange Commission to require enhanced disclosures of employee stock options, to require a study on the economic impact of broad-based employee stock option plans, and for other purposes.

May 1, 2003

Mr. ENSIGN (for himself, Mrs. Boxer, Ms. Cantwell, Mr. Crapo, Mr. Craig, Mr. Allen, Mrs. Murray, Mrs. Feinstein, Mr. Reid, Mr. Allard, Mr. Burns, Mr. Warner, Mr. Bennett, Mr. Smith, and Ms. Stabenow) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

To direct the Securities and Exchange Commission to require enhanced disclosures of employee stock options, to require a study on the economic impact of broad-based employee stock option plans, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Broad-Based Stock Option Plan Transparency Act of 2003'.

SEC. 2. CONGRESSIONAL FINDINGS.

Congress finds that--

(1) innovation and entrepreneurship, particularly in the high technology industry, helped propel the economic growth of the 1990s, and will continue to be the essential building blocks of economic growth in the 21st century;

(2) broad-based employee stock option plans enable entrepreneurs and corporations to attract quality workers, to incentivize worker innovation, and to stimulate productivity, which in turn increase shareholder value;

(3) broad-based employee stock options plans that expand corporate ownership to rank-and-file employees spur capital formation, benefit workers, and improve corporate performance to the benefit of investors and the economy;

(4) concerns raised about the impact of employee stock option plans on shareholder value raise legitimate issues relevant to the current level of disclosure and transparency of those plans to current and potential investors; and

(5) investors deserve to have accurate, reliable, and meaningful information about the existence of outstanding employee stock options and their impact on the share value of a going concern.

SEC. 3. IMPROVED EMPLOYEE STOCK OPTION TRANSPARENCY AND REPORTING DISCLOSURES.

(a) ENHANCED DISCLOSURES REQUIRED- Not later than 180 days after the date of enactment of this Act, the Securities and Exchange Commission (in this Act referred to as the `Commission') shall, by rule, require, for each company required to file periodic reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that such reports include detailed information regarding stock option plans, stock purchase plans, and other arrangements involving an employee acquisition of an equity interest in the company, particularly with respect to the dilutive effect of such plans, including--

(1) a discussion, written in `plain English' (in accordance with the Plain English Handbook published by the Office of Investor Education and Assistance of the Commission), of the dilutive effect of stock option plans, including tables or graphic illustrations of such dilutive effects;

(2) expanded disclosure of the dilutive effect of employee stock options on the earnings per share number of the company;

(3) prominent placement and increased comparability of all stock option related information; and

(4) a summary of the stock options granted to the 5 most highly compensated executive officers of the company, including any outstanding stock options of those officers.

(b) EQUITY INTEREST- As used in this section, the term `equity interest' includes common stock, preferred stock, stock appreciation rights, phantom stock, and any other security that replicates the investment characteristics of such securities, and any right or option to acquire any such security.

SEC. 4. EVALUATION OF EMPLOYEE STOCK OPTION PLANS TRANSPARENCY AND REPORTING DISCLOSURES AND REPORT TO CONGRESS.

(a) STUDY AND REPORT-

(1) STUDY- During the 3-year period following the date of issuance of a final rule under section 3(a), the Commission shall conduct a study of the effectiveness of the enhanced disclosures required by section 3 in increasing transparency to current and potential investors.

(2) REPORT- Not later than 180 days after the end of the 3-year period referred to in paragraph (1), the Commission shall transmit a report of the results of the study conducted under paragraph (1) to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate.

(b) MORATORIUM ON NEW ACCOUNTING STANDARDS RELATED TO STOCK OPTIONS- During the period beginning on the date of enactment of this Act and ending 60 days after the date of transmission of the report required under subsection (a)(2), the Commission shall not recognize as generally accepted accounting principles for purposes of enforcing the securities laws any accounting standards related to the treatment of stock options that the Commission did not recognize for that purpose before April 1, 2003.

SEC. 5. STUDY ON THE ECONOMIC IMPACT OF BROAD-BASED EMPLOYEE STOCK OPTION PLANS AND REPORT TO CONGRESS.

(a) STUDY-

(1) IN GENERAL- The Secretary of Commerce shall conduct a study and analysis of broad-based employee stock option plans, particularly in the high technology and any other high growth industries.

(2) CONTENT- The study and analysis required by paragraph (1) shall include an examination of--

(A) the impact of such plans on expanding employee corporate ownership to workers at a wide-range of income levels, with a particular focus on rank-and-file employees;

(B) the role of such plans in the recruitment and retention of skilled workers; and

(C) the role of such plans in stimulating research and innovation;

(D) the impact of such plans on the economic growth of the United States; and

(E) the role of such plans in strengthening the international competitiveness of companies organized under the laws of the United States.

(b) REPORT- Not later than 1 year after the date of enactment of this Act, the Secretary of Commerce shall submit a report on the study and analysis required by subsection (a) to--

(1) the Committee on Energy and Commerce and the Committee on Financial Services of the House of Representatives; and

(2) the Committee on Commerce, Science, and Transportation and the Committee on Banking, Housing, and Urban Affairs of the Senate.

END