[Congressional Record Volume 146, Number 46 (Wednesday, April 12, 2000)]
[Senate]
[Pages S2575-S2586]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
WORKER ECONOMIC OPPORTUNITY ACT
The PRESIDING OFFICER. The clerk will report S. 2323 by title.
The bill clerk read as follows:
A bill (S. 2323) to amend the Fair Labor Standards Act of
1938 to clarify the treatment of stock options under the Act.
The Senate proceeded to consider the bill.
Mr. BAUCUS. Mr. President, I suggest the absence of a quorum, and I
ask unanimous consent that the quorum call not be charged against
either side.
The PRESIDING OFFICER. Without objection, it is so ordered.
The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. McCONNELL. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
The distinguished Senator from Kentucky, Mr. McConnell, is
recognized.
Mr. McCONNELL. Mr. President, I want to speak on behalf of the
pending measure, the Worker Economic Opportunity Act, which the Senate
will pass shortly.
This bipartisan bill will ensure that American workers can receive
lucrative stock options from their employers--once considered the
exclusive perk of corporate executives.
Senator Dodd and I have worked closely with Senators Jeffords and
Enzi, Abraham, Bennett, and Lieberman, the Department of Labor, and
others to develop this critical bill.
We have the support of groups representing business and workers, as
well as Secretary Alexis Herman. In short, everybody wins with this
proposal.
All over the country today, forward-thinking employers are offering
new financial opportunities--such as stock options--to hourly
employees.
Unfortunately, it appears that our 1930's vintage labor laws might
not allow the normal workers of the 21st century to reap these
benefits.
When we realized this, we decided to fix this problem. It would be a
travesty for us to let old laws steal this chance for the average
employee to share in his or her company's economic growth.
The Workers Economic Opportunity Act is really very simple. It says
that it makes no difference if you work in the corporate boardroom or
on the factory floor--everyone should be able to share in the success
of the company.
In sum, the bill would amend the Fair Labor Standards Act to ensure
that employer-provided stock option programs are allowed, just like
employee bonuses already are.
[[Page S2576]]
Also, this legislation includes a broad ``safe harbor'' that
specifies that employers have no liability because of any stock options
or similar programs that they have given to employees in the past.
I hope that this bill will be the first of many commonsense efforts
to drag old labor and employment laws into the new millennium.
Mr. President, we need to pass this law. The Federal Reserve Board of
Governors recently estimated that 17 percent of firms have introduced
stock option programs.
They went on to say that over the last two years, 37 percent of these
employers have broadened eligibility for their stock option programs--
allowing even more American workers to share in their employers'
prosperity.
The Employment Policy Foundation estimates between 9.4 million and
25.8 million workers receive benefits through some type of equity
participation program.
This trend is growing, and given the current state of the economy, it
is likely to continue to grow.
However, we have one last thing we have to do to make sure that
American workers can have this incredible opportunity--we have to pass
this bill.
Without it, our ``New Deal'' labor laws will strangle the benefits
our ``New Economy'' offers to American workers.
Mr. President, I ask unanimous consent that a letter of support from
the United States Chamber of Commerce be printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
Chamber of Commerce of the
United States of America,
Washington, DC, April 7, 2000.
Hon. Mitch McConnell,
U.S. Senate,
Washington, DC.
Dear Senator McConnell: I am writing to express the support
of the United States Chamber of Commerce, the world's largest
business federation representing more than three million
businesses and organizations of every size, sector and
region, for S. 2323, the Worker Economic Opportunity Act.
Last year the U.S. Department of Labor issued an advisory
letter stating that companies providing stock options to
their employees must include the value of those options in
the base rate of pay for hourly workers. Employers must then
recalculate overtime pay over the period of time between the
granting and exercise of the options. This costly and
administratively complex process will cause many employers to
refrain from offering stock options and similar employee
equity programs to their nonexempt workers.
Clearly, the Fair Labor Standards Act needs to be
modernized to reflect the fact that many of today's hourly
workers receive stock options. For this reason, the Chamber
strongly supports S. 2323, which would exempt stock options,
stock appreciation rights, and employee stock purchase plan
programs from the regular rate of pay for nonexempt workers.
This carefully crafted legislation will provide certainty to
employers who want to increase employee ownership and equity
building by offering stock options and similar programs to
their hourly workers. We commend you for negotiating a bill
that is broadly supported and look forward to working with
you to ensure its passage as soon as possible in this
legislative session.
Again, thank you for your leadership in introducing S.
2323, legislation that is important to millions of American
workers and employers.
Sincerely,
R. Bruce Josten.
Mr. McCONNELL. Mr. President, I ask unanimous consent that the
sponsors' statement of legislative intent be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Joint Statement of Legislative Intent by the Sponsors of S. 2323, the
Worker Economic Opportunity Act
I. Introduction and Purpose
The purpose of S. 2323, the Worker Economic Opportunity
Act, is to allow employees who are eligible for overtime pay
to continue to share in workplace benefits that involve their
employer's stock or similar equity-based benefits. More
working Americans are receiving stock options or
opportunities to purchase stock than ever before. The Worker
Economic Opportunity Act updates the Fair Labor Standards Act
to ensure that rank-and-file employees and management can
share in their employer's economic well being in the same
manner.
Employers have provided stock and equity-based benefits to
upper level management for decades. However, it is only
recently that employers have begun to offer these programs in
a broad-based manner to non-exempt employees. Historically,
most employees had little contact with employer-provided
equity devices outside of a 401(k) plan. But today, many
employers, from a broad cross-section of industry, have begun
offering their employees opportunities to purchase employer
stock at a modest discount, or have provided stock options to
rank and file employees; and they have even provided outright
grants of stock under certain circumstances.
The Federal Reserve Board of Governors recently estimated
that 17 percent of large firms have introduced a stock
options program and 37 percent have broadened eligibility for
their stock option programs in the last two years.\1\ The
Employment Policy Foundation estimates between 9.4 million
and 25.8 million workers receive benefits through some type
of equity participation program.\2\ The trend is growing, and
given the current state of the economy, it is likely to
continue.
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Footnotes at end of article.
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The tremendous success of our economy over the last several
years has been largely attributed to the high technology
sector. One of the things that our technology companies have
succeeded at is creating an atmosphere in which all employees
share the same goal: the success of the company. By vesting
all employees in the success of the business, stock options
and other equity devices have become an important tool to
create businesses with unparalleled productivity. The Worker
Economic Opportunity Act will encourage more employers to
provide opportunities for equity participation to their
employees, further expanding the benefits that inure from
equity participation.
II. Background and Need for Legislation
A. Background on stock options and related devices
Employers use a variety of equity devices to share the
benefits of equity ownership with their employees. As the
employer's stock appreciates, these devices provide a tool to
attract and retain employees, an increasingly difficult task
during a time of record economic growth and low unemployment
in the United States. These programs also foster a broader
sense of commitment to a common goal--the maintenance and
improvement of the company's performance--among all employees
nationally and even internationally, and thus provide an
alignment between the interests of employees with the
interests of the company and its shareholders. They can also
reinforce the evolving employer-employee relationship, with
employees viewed as stakeholders.
Employer stock option and stock programs come in all
different types and formats. The Worker Economic Opportunity
Act focuses on the most common types: stock option, stock
appreciation right, and employee stock purchase programs.
Stock Option Programs.--Stock options provide the right to
purchase the employer's securities for a fixed period of
time. Stock option programs vary greatly by employer.
However, two main types exist: nonqualified and qualified
option programs.\3\ Most programs are nonqualified stock
option programs, meaning that the structure of the program
does not protect the employee from being taxed at the time of
exercise. However, the mechanics of stock option programs are
very similar regardless of whether they are nonqualified or
qualified. Some of these characteristics are described below.
Grants. An employer grants to employees a certain number of
options to purchase shares of the employer's stock. The
exercise price may be around the fair market value of the
stock at the time of the grant, or it may be discounted below
fair market value to provide the employee an incentive to
participate in the option program.
Vesting. Most stock option programs have some sort of
requirement to wait some period after the grant to benefit
from the options, often called a vesting period. After the
period, employees typically may exercise their options by
exchanging the options for stock at the exercise price at any
time before the option expires, which is typically up to ten
years. In some cases, options may vest on a schedule, for
example, with a third of the options vesting each year over a
three-year period. In addition to vesting on a date certain,
some options may vest if the company hits a certain goal,
such as reaching a certain stock price for a certain number
of days. Some programs also provide for accelerated or
automatic vesting in certain circumstances such as when an
employee retires or dies before the vesting period has run,
where there is change in corporate control or when an
employee's employment is terminated.
Exercise. Under both qualified and nonqualified stock
option programs, an employee can exchange the options, along
with sufficient cash to pay the exercise price of the
options, for shares of stock. Because many rank-and-file
employees cannot afford to pay the cost of buying the stock
at the option price in cash, many employers have given their
employees the opportunity for ``cashless'' exercise, either
for cash or for stock, under nonqualified option plans. In a
cashless exercise for cash, an employee gives options to a
broker or program administrator, this party momentarily
``lends'' the employee the money to purchase the requisite
number of shares at the grant price, and then immediately
sells the shares. The employee receives the difference
between the market price and the exercise price of the stock
(the profit), less transaction fees. In a cashless exercise
for stock, enough shares are sold to cover the cost of buying
the
[[Page S2577]]
shares the employee will retain. In either case, the employee
is spared from having to provide the initial cash to purchase
the stock at the option price.
An employee's options usually expire at the end of the
option period. An employee may forfeit the right to exercise
the options, in whole or in part, under certain
circumstances, including upon separation from the employer.
However, some programs allow the employee to exercise the
options (sometimes for a limited period of time) after they
leave employment with the employer.
Stock Appreciation Rights.--Stock appreciation rights
(SARs) operate similarly to stock options. They are the
rights to receive the cash value of the appreciation on an
underlying stock or equity based security. The stock may be
publicly traded, privately held, or may be based on valued,
but unregistered, stock or stock equivalent. The rights are
issued at a fixed price for a fixed period of time and can be
issued at a discount, carry a vesting period, and are
exercisable over a period of time. SARs are often used when
an employer cannot issue stock because the stock is listed on
a foreign exchange, or regulatory or financial barriers make
stock grants impracticable.
Employee Stock Purchase Plans.--Employee stock purchase
plans (ESPPs) give employees the opportunity to purchase
employer stock, usually at up to a 15 percent discount, by
either regularly or periodically paying the employer directly
or by having after-tax money withdrawn as a payroll
deduction. Like option programs, ESPPs can be qualified or
nonqualified.
Section 423 of the Internal Revenue Code \4\ sets forth the
factors for a qualified ESPP. The ability to participate must
be offered to all employees, and employees must voluntarily
choose whether to participate in the program. The employer
can offer its stock to employees at up to a 15 percent
discount off of the fair market value of the stock,
determined at the time the option to purchase stock is
granted or at the time the stock is actually purchased. The
employee is required to hold the stock for one or two years
after the option is granted to receive capital gains
treatment. If the employee sells the stock before the
requisite period, any gain made on the sale is treated as
ordinary income.
Nonqualified ESPPs are usually similar to qualified ESPPs,
but they lack one or more qualifying features. For example,
the plan may apply only to one segment of employees, or may
provide for a greater discount.
B. The Fair Labor Standards Act and stock options
The Fair Labor Standards Act of 1938 \5\ (FLSA) establishes
workplace protections including a minimum hourly wage and
overtime compensation for covered employees, record keeping
requirements and protections against child labor, among other
provisions. A cornerstone of the FLSA is the requirement that
an employer pay its nonexempt employees overtime for all
hours worked over 40 in a week at one and one-half times the
employee's regular rate of pay.\6\ The term ``regular rate''
is broadly defined in the statute to mean ``all remuneration
for employment paid to, or on behalf of, the employee.'' \7\
Section 207(e) of the statute excludes certain payments
from an employee's regular rate of pay to encourage employers
to provide them, without undermining employees' fundamental
right to overtime pay. Excluded payments include holiday
bonuses or gifts,\8\ discretionary bonuses,\9\ bona fide
profit sharing plans,\10\ bona fide thrift or savings
plans,\11\ and bona fide old-age, retirement, life, accident
or health or similar benefits plans.\12\ By excluding these
payments from the definition of ``regular rate,'' \13\
Congress recognized that certain kinds of benefits provided
to employees are not within the generally accepted meaning of
compensation for work performed.
Thus, by excluding these payments from the regular rate in
section 207(e) of the FLSA, Congress encouraged employers to
provide these payments and benefits to employees. The
encouragement has worked well--employees now expect to
receive from their employer at least some of these benefits
(i.e., healthcare), which today, on average, comprise almost
30 percent of employees' gross compensation./14/ For similar
reasons, Congress decided that the value and income from
stock option, SAR and ESPP programs should also be
excluded from the regular rate, because they allow
employees to share in the future success of their
companies.
C. The Department of Labor's opinion letter on stock options
The impetus behind the Worker Economic Opportunity Act is
the broad dissemination of a February 1999 advisory opinion
letter \15\ regarding stock options issued by the Department
of Labor's Wage and Hour Division, the agency charged with
the administration of the FLSA. The letter involved an
employer's stock option program wherein its employees would
be notified of the program three months before the options
were granted, and some rank-and-file employees employed by
the company on the grant date would receive options. The
options would have a two-year vesting period, with
accelerated vesting if certain events occurred. The employer
would also automatically exercise any unexercised options on
behalf of the employees the day before the program ended.\16\
The opinion letter indicated that the stock option program
did not meet any of the existing exemptions to the regular
rate under the FLSA, although it did not explain the reasons
in any detail. Later, the Administration's testimony before
the House Workforce Protections Subcommittee explained that
the stock option program did not meet the gift, discretionary
bonus, or profit sharing exceptions to the regular rate
because, among other reasons, it required employees to do
something as a condition of receiving the options--to remain
employed with the company for a period of time.\17\ Such a
condition is not allowed under the current regular rate
exclusions. The testimony also noted that the program was not
excludable under the thrift or savings plan exception because
the employees were only allowed to exercise their options
using a cashless method of exercise, and thus the employees
could not keep the stock as savings or an investment.\18\
The opinion letter stated that the employer would be
required to include any profits made from the exercise of the
options in the regular rate of pay of its nonexempt
employees. In particular, the profits would have to be
included in the employee's regular rate for the shorter of
the time between the grant date and the exercise date, or the
two years prior to exercise.19
Section 207(e)'s exclusions to the regular rate did not
clearly exempt the profits of stock options or similar equity
devices from the regular rate, and thus from the overtime
calculation. Thus, the Department of Labor's opinion letter
provided a permissible reading of the statute. A practical
effect of the Department of Labor's interpretation was stated
by J. Randall MacDonald, Executive Vice President of Human
Resources and Administration at GTE during a March 2 House
Workforce Protections Subcommittee hearing on the issue:
``[i]f the Fair Labor Standards Act is not corrected to
reverse this policy, we will no longer be able to offer stock
options to our nonexempt employees.'' 20
As the contents of the letter became generally known in the
business community and on Capitol Hill, it became clear that
the letter raised an issue under the FLSA that previously had
not been contemplated. It further became clear that an
amendment to the FLSA would be needed to change the law
specifically to address stock options.
A legislative solution was not only supported by employers
at the House hearing, it was also supported by employees and
unions. Patricia Nazemetz, Vice President of Human Resources
for Xerox Corporation, read a letter from the Union of
Needlework, Industrial and Textile Employees (UNITE), the
union that represents many Xerox manufacturing and
distribution employees, in which the International Vice
President stated:
``Xerox's UNITE chapter would strongly urge Congress to
pass legislation exempting stock options and other forms of
stock grants from the definition of the regular rate for the
purposes of calculating overtime. . . . It is only recently
that Xerox has made bargaining unit employees eligible to
receive both stock options and stock grants. Without a
clarification to the FLSA, we are afraid Xerox may not offer
stock options or other forms of stock grants to bargaining
unit employees in the future.'' 21
At the House hearing, the Administration also acknowledged
that the problem needed to be fixed legislatively in a
flexible manner, ``Based on the information we have been able
to obtain, there appears to be wide variations in the scope,
nature and design of stock option programs. There is no one
common model for a program, suggesting the need for a
flexible approach. Given the wide variety and complexity
of programs, we believe that the best solution would be to
address this matter legislatively.'' 22
The general agreement on the need to fix the problem among
these diverse interests led to the development of the Worker
Economic Opportunity Act.
III. Explanation of the Bill and Sponsors' Views
Congress worked closely with the Department of Labor to
develop this important legislation. The sections below
reflect the discussions between the sponsors and the
Department of Labor during the development of the
legislation, and the sponsors' intent and their understanding
of the legislation.
A. Definition of bona fide ESPP
For the purposes of the Worker Economic Opportunity Act, a
bona fide employee stock purchase plan includes an ESPP that
is (1) a qualified ESPP under section 423 of the Internal
Revenue Code;23 or (2) a plan that meets the
criteria identified below.
1. Qualified employee stock purchase plans
Qualified ESPPs, known as section 423 plans, comprise the
overwhelming majority of stock purchase plans. Thus, the
intent of the legislation is to deem ``bona fide'' all plans
that meet the criteria of section 423.
2. Nonqualified employee stock purchase plans
As described above, section 423 plans are considered bona
fide ESPPs. Further, those ESPPs that do not meet the
criteria of section 423, but that meet the following criteria
also qualify as bona fide ESPPs:
(a) the plan allows employees, on a regular or periodic
basis, to voluntarily provide funds, or to elect to authorize
periodic payroll deductions, for the purchase at a future
time of shares of the employer's stock;
(b) the plan sets the purchase price of the stock as at
least 85% of the fair market value of the stock at the time
the option is granted or at the time the stock is purchased;
and
(c) the plan does not permit a nonexempt employee to accrue
options to purchase stock at a rate which exceeds $25,000 of
fair market value of such stock (determined either at the
time the option is granted or the time the option is
exercised) for each calendar year.
The sponsors note that many new types of ESPPs are being
developed, particularly by
[[Page S2578]]
companies outside the United States, and that many of these
companies may also intend to apply them to their U.S.-based
employees. These purchase plans have several attributes which
make them appear to be more like savings plans than
traditional U.S. stock purchase plans, such as a period of
payroll deductions of between three and five years, or an
employer provided ``match'' in the form of stock or options
to the employee.
Further many companies are developing plans that are
similar to section 423 plans. The sponsors believe that it is
in the best interests of employees for the Secretary of Labor
to review these and other new types of plans carefully in the
light of the purpose of the Worker Economic Opportunity Act--
to encourage employers to provide opportunities for equity
participation to employees--and to allow section 7(e), as
amended, to accommodate a wide variety of programs, where it
does not undermine employees' fundamental right to overtime
pay. It is the sponsors' vision that this entire law be
flexible and forward-looking and that the Department of Labor
apply and interpret it consistently with this vision.
B. ``Value or Income'' is defined broadly
The hallmark of the Worker Economic Opportunity Act is that
section 7(e)(8) provides that any value or income derived
from stock option, SAR or bona fide ESPP programs is excluded
from the regular rate of pay. For this reason, the phrase
``value or income'' is construed broadly to mean any value,
profit, gain, or other payment obtained, recognized or
realized as a result of, or in connection with, the
provision, award, grant, issuance, exercise or payment of
stock options, SARs, or stock issued or purchased pursuant to
a bona fide ESPP program established by the employer.
This broad definition means, for example, that any nominal
value that a stock option or stock appreciation right may
carry before it is exercised is excluded from the regular
rate. Similarly, the value of the stock or the income in the
form of cash is excluded after options are exercised, as is
the income earned from the stock in the form of dividends or
ultimately the gains earned, if any, on the sale of the
stock. The discount on a stock option, SAR or stock purchase
under a ESPP program is likewise excludable.
C. The act preserves programs which are otherwise excludable
under existing regular rate exemptions
The Worker Economic Opportunity Act recognizes two ways
that employer equity programs may be excluded from the
regular rate. Such equity programs may be excluded if they
meet the existing exemptions to the regular rate pursuant to
Section 7(e)(1)-(7), which apply to contributions and sums
paid by employers regardless of whether such payments are
made in cash or in grants of stock or other equity based
vehicles, and provided such payment or grant is consistent
with the existing regulations promulgated under Section 7(e).
Employer equity plans also may be excluded under new section
7(e)(8) added by the Worker Economic Opportunity Act.
This is reaffirmed in new section 207(e)(8), which makes
clear that the enactment of section 7(e)(8) carries no
negative implication about the scope of the preceding
paragraphs of section (e). Rather, the sponsors understand
that some grants and rights that do not meet all the
requirements of section 7(e)(8) may continue to qualify for
exemption under an earlier exclusion. For example, programs
that grant options or SARs that do not have a vesting period
may be otherwise excludable from the regular rate if they
meet another section (7)(e) exclusion. This would be true
even if the option was granted at less than 85% of fair
market value. This language was not intended to prevent
grants or rights that meet some but not all of the
requirements of an earlier exemption in 7(e) from being
exempt under the newly created exemption.
D. Basic communication to employees required because it helps
ensure a successful program
For grants made under a stock option, SAR or bona fide ESPP
program to qualify for the exemption under new section
7(e)(8), their basic terms and conditions must be
communicated to participating employees either at the
beginning of the employee's participation in the program or
at the time of grant. This requirement was put into the
legislation to recognize that when employees understand the
mechanics and the implications of the equity devices they are
given, they can more fully participate in exercising
meaningful choices with respect to those devices. As
discussed below, this is a simple concept, it is not intended
to be a complicated or burdensome requirement.
1. Terms and conditions to be communicated to employees
Employers must communicate the material terms and
conditions of the stock option, stock appreciation right or
employee stock purchase program to employees to ensure that
they have sufficient information to decide whether to
participate in the program. With respect to options, these
terms include basic information on the number of options
granted, the number of shares granted per option, the grant
price, the grant date or dates, the length of any applicable
vesting period(s) and the dates when the employees will first
be able to exercise options or rights, under what conditions
the options must be forfeited or surrendered, the exercise
methods an employee may use (such as cash for stock, cashless
for cash or stock, etc.), any restrictions on stock purchased
through options, and the duration of the option, and what
happens to unexercised options at the end of the exercise
period. Pending issuance of any regulations, an employer who
communicated the information in the prior sentence is to be
deemed to have communicated the terms and conditions of the
grant. Similar information should be provided regarding SARs
or ESPPs.
2. The mode of communications
The legislation does not specify any particular mode of
communication of relevant information, and no particular
method of communication is required, as long as the method
chosen reasonably communicates the information to employees
in an understandable fashion. For example, employers may
notify their employees of an option grant by letter, and
later provide a formal employee handbook, or other method
such as a link to a location on the company Intranet. Any
combination of communications is acceptable. The intent of
the legislation is to ensure that employees are provided the
basic information in a timely manner, not to mandate the
particular form of communication.
3. The timing of communications
The legislation specifies that the employer is to
communicate the terms and conditions of the stock option, SAR
and ESPP programs to employees at or before the beginning of
the employee's participation in the program or at the time
the employee receives a grant. It is acceptable, and perhaps
even likely, that the relevant information on a program will
be disseminated in a combination of communications over time.
This approach allows flexibility and acknowledges that types
of participation vary greatly between stock option and SAR
programs, on the one hand, and ESPPs on the other.
For example, under an ESPP, an employee may choose to begin
payroll deductions in January, but not actually have the
option to purchase stock until June. By contrast, with an
option or SAR program, employees are given the options or
rights at the outset, but those rights may not vest until
some year in the future.
The timing of the communication is flexible, because often
it is difficult to have materials ready for employees at the
beginning of a stock option or stock appreciation right
program, immediately following approval by the Board of
Directors, because of confidentiality requirements. Thus,
within a reasonable time following approval of a stock option
grant by the Board of Directors, the employer is required to
communicate basic information about the grant employees have
received. For example, an initial letter may notify the
employees that they have received a certain number of stock
options and provide the basic information about the program.
More detailed information about the program may precede or
follow the grant in formats such as an employee handbook,
options pamphlet, or an Intranet site that provides options
information.
E. Exercisability criteria applicable only to stock options
and SARs
As discussed above, a common feature in grants of stock
options and SARs is a vesting or holding period, which under
current practice may be as short as a few months or as long
as a number of years. For a stock option or SAR to be
excluded from the regular rate pursuant to the Worker
Economic Opportunity Act, new section 7(e)(8) requires that
the grant or right generally cannot be exercisable for at
least six months after the date of grant.
For stock option grants that include a vesting requirement,
typically an option will become exercisable after the vesting
period ends. Some option grants vest gradually in accordance
with a schedule. For example, a portion of the employee's
options may vest after six months, with the remaining portion
vesting three months thereafter. Options may also vest in
connection with an event, such as the stock reaching a
certain price or the company attaining a performance target.
In addition, the sponsors recognize that a grant that is
vested may not be currently exercisable by the employee
because of an employer's requirement that the employee hold
the option for a minimum period prior to exercise. In other
words, there may be an additional period of time after the
vesting period during which the option remains
unexerciseable. An option or SAR may meet the exercisability
requirements of the bill without regard to the reason why the
right to exercise is delayed.
Further, if a single grant of options or SARs includes some
options exercisable after six months while others are
exercisable earlier, then those exercisable after the six
month period will meet the exercisability requirement even if
the others do not. The determination is made option by
option, SAR by SAR. In addition, if exercisability is tied to
an event, the determination of whether the six-month
requirement is met is based on when the event actually
occurs. Thus, for example, if an option is exercisable only
after an initial public offering (IPO) and the IPO occurs
seven months after grant, the option shall be deemed to have
met the provision's exercisability requirement.
However, section 7(e)(8)(B) specifically recognizes that
there are a number of special circumstances when it is
permissible for an employer to allow for earlier exercise to
occur (in less than 6 months) without loss of the exemption.
For example, an employer or plan may provide that a grant may
vest or
[[Page S2579]]
otherwise become exercisable earlier than six months because
of an employee's disability, death, or retirement. The
sponsors encourage the Secretary to consider and evaluate
other changes in employees' status or circumstances.
Earlier exercise is also permitted in connection with a
change in corporate ownership. The term change in ownership
is intended to include events commonly considered changes in
ownership under general practice for options and SARs. For
example, the term would include the acquisition by a party of
a percentage of the stock of the corporation granting the
option or SAR, a significant change in the corporation's
board of directors within 24 months, the approval by the
shareholders of a plan of merger, and the disposition of
substantially all of the corporation's assets.
The sponsors believe it important to allow employers the
flexibility to construct plans that allow for these earlier
exercise situations. However, this section is not intended to
in any way require employers to include these or any other
early exercise circumstances in their plans.
F. Stock option and SAR programs may be awarded at fair
market value or discounted up to and including 15%
Stock options and SARs generally are granted to employees
at around fair market value or at a discount. New section
7(e)(8)(B) recognizes that grants may be at a discount, but
that the discount cannot be more than a 15% discount off of
the fair market value of the stock (or in the case of stock
appreciation rights, the underlying stock, security or other
similar interest).
A reasonable valuation method must be used to determine
fair market value at the time of grant. For example, in the
case of a publicly traded stock, it would be reasonable to
determine fair market value based on averaging the high and
low trading price of the stock on the date of the grant.
Similarly, it would be reasonable to determine fair market
value as being equal to the average closing price over a
period of days ending with or shortly before the grant date
(or the average of the highs and lows on each day). In the
case of a non-publicly traded stock, any reasonable valuation
that is made in good faith and based on reasonable valuation
principles must be used.
The sponsors understand that the exercise price of stock
options and SARs is sometimes adjusted in connection with
recapitalizations and other corporate events. Accounting and
other tax guidelines have been developed for making these
adjustments in a way that does not modify a participant's
profit opportunity. Any adjustment conforming with these
guidelines does not create an issue under the 15% limit on
discounts.
G. Employee participation in equity programs must be
voluntary
New section (8)(C) of the Worker Economic Opportunity Act
states that the exercise of any grant or right must be
voluntary. Voluntary means that the employee may or may not
choose not to exercise his or her grants or rights at any
point during the stock option, stock appreciation right, or
employee stock purchase program, as long as that is in
accordance with the terms of the program. This is a simple
concept and it is not to be interpreted as placing any other
restrictions on such programs.
It is the intent of the sponsors that this provision does
not restrict the ability of an employer to automatically
exercise stock options or SARs for the employee at the
expiration of the grant or right. However, an employer may
not automatically exercise stock options or SARs for an
employee who has notified the employer that he or she does
not want the employer to exercise the options or rights on
his or her behalf.
Stock option, SARs and ESPP programs may qualify under new
section 7(e)(8) even though the employer chooses to require
employees to forfeit options, grants or rights in certain
employee separation situations.
H. Performance based programs
The purpose of new section 7(e)(8)(D) is to set out the
guidelines employers must follow in order to exclude from the
``regular rate'' grants of stock options, SARs, or shares of
stock pursuant to an ESPP program based on performance. If
neither the decision of whether to grant nor the decision as
to the size of the grant is based on performance, the
provisions of in new section 7(e)(8)(D) do not apply. For
example, grants made to employees at the time of their hire,
and any value or income derived from these grants, may be
excluded provided they meet the requirements in new sections
7(e)(8)(A)-(C).
New section 8(D) is divided into two clauses. The first,
clause (i), deals with awards of options awarded based on
pre-established goals for future performance, and the second,
clause (ii), deals with grants that are awarded based on past
performance.
1. Goals for future performance
New section 7(e)(8)(D)(i) provides that employers may tie
grants to future performance so long as the determinations as
to whether to grant and the amount of grant are based on the
performance of either (i) any business unit consisting of at
least ten employees or (ii) a facility.
A business unit refers to all employees in a group
established for an identifiable business purpose. The
sponsors intend that employers should have considerable
flexibility in defining their business units. However, the
unit may not merely be a pretext for measuring the
performance of a single employee or small group of fewer than
ten employees. By way of example, a unit may include any of
the following: (i) a department, such as the accounting or
tax departments of a company, (ii) a function, such as the
accounts receivable function within a company's accounting
department, (iii) a position classification, such as those
call-center personnel who handle initial contacts, (iv) a
geographical segment of a company's operations, such as
delivery personnel in a specified geographical area, (v) a
subsidiary or operating division of a company, (vi) a project
team, such as the group assigned to test software on various
computer configurations or to support a contract or a new
business venture.
With respect to the requirement to have ten or more
employees in a unit, this determination is based on all of
the employees in the unit, not just those employees who are,
for example, non-exempt employees.
A facility includes any separate location where the
employer conducts its business. Two or more locations that
would each qualify as a facility may be treated as a single
facility. Performance measurement based on a particular
facility is permitted without regard to the number of
employees who are working at the facility. For example, a
facility would include any of the following: a separate
office location, each separate retail store operated by a
company, each separate restaurant operated by a company, a
plant, a warehouse, or a distribution center.
The definitions of both a business unit and a facility are
intended to be flexible enough to adapt to future changes in
business operations. Therefore, the examples of business
units set forth above should be viewed with this in mind.
Options may be excluded from the regular rate in accordance
with new section 7(e)(8)(D)(i) under the following
circumstances:
Example 1--Employer announces that certain employees at the
Wichita, Kansas plant will receive 50 stock options if the
plant's production reaches a certain level by the end of the
year (note that in order to fit within this subsection, the
grant does not have to be made on a facility wide basis);
Example 2--Employer announces that it will grant employees
working on the AnyCo. account 50 stock options each if the
account brings in a certain amount of revenue by the end of
the year, provided that there are at least 10 employees on
the AnyCo. account.
Employer 3--Employer announces that certain employees will
receive stock options if the company reaches specified goal.
New section 7(e)(8)(D)(i) also makes clear that otherwise
qualifying grants remain excludable from the regular rate if
they are based on an employees' length of service or minimum
schedule of hours or days of work. For example, an employer
may make grants only to employees: (i) who have a minimum
number of years of service, (ii) who have been employed for
at least a specified number of hours of service during the
previous twelve month period (or other period), (iii) who are
employed on the grant date (or a period ending on the grant
date), (iv) who are regular full-time employees (i.e., not
part-time or seasonal), (v) who are permanent employees, or
(vi) who continue in service for a stated period after the
grant date (including any minimum required hours during this
period). Any or all of these conditions, and similar
conditions, are permissible.
2. Past performance
New section 7(e)(8)(D)(ii) clarifies that employers may
make determinations as to existence and amount of grants or
rights based on past performance, so long as the
determination is in the sole discretion of the employer and
not pursuant to any prior contract. Thus, employers have
broad discretion to make grants as rewards for the past
performance of a group of employees, even if it is not a
facility or business unit, or even for an individual
employee. The determination may be based on any performance
criteria, including hours of work, efficiency or
productivity.
Under new section 7(e)(8)(D)(ii), employers may develop a
framework under which they will provide options in the
future, provided that to the extent the ultimate
determination as to the fact of and the amount of grants or
rights each employee will receive is based on past
performance, the employer does not contractually obligate
itself to provide the grant or rights to an employee. Thus,
new section 7(e)(8)(D)(ii) would allow an employer to
determine in advance that it will provide 100 stock options
to all employees who receive ``favorable'' ratings on their
performance evaluations at the end of the year, and it would
allow the employer to advise employees, in employee handbooks
or otherwise, of the possibility that favorable evaluations
may be rewarded by option grants, so long as the employer
does not contractually obligate itself to provide the grants
or in any other way relinquish its discretion as to the
existence or amount of grants.
Similarly, the fact that an employer makes grants for
several years in a row based on favorable performance
evaluation ratings, even to the point where employees come to
expect them, does not mean in itself that the employer may be
deemed to have ``contractually obligated'' itself to provide
the rights.
Some examples of performance based grants that fit within
new section7(e)(8)(D)(ii) are as follows:
[[Page S2580]]
Example A--Company A awards stock options to encourage
employees to identify with the company and to be creative and
innovative in performing their jobs. Company A's employee
handbook includes the following: ``Company A's stock
option program is a long-term incentive used to recognize
the potential for, and provide an incentive for,
anticipated future performance and contribution. Stock
option grants may be awarded to employees at hire, on an
annual basis, or both. All full-time employees who have
been employed for the appropriate service time are
eligible to be considered for annual stock option
grants.''
Company A provides stock options to most nonexempt
employees following their performance review. Each employee's
manager rates the employee during a review process, resulting
in a rating of from 1 to 5. The rating is based upon the
manager's objective and subjective analysis of the employee's
performance. The rating is then put into a formula to
determine the number of options an employee is eligible to
receive, based on the employee's level within the company,
the product line that the employee works on, and the value of
the product to the company's business. Employees are aware a
formula is used. The Company then informs the employee of the
number of options awarded to him or her.
Managers make it clear to employees that the options are
granted in recognition of prior performance with the
expectation of the employee's future performance, but no
contractual obligation is made to employees. This process is
repeated annually, with employees eligible for stock options
each year based on their annual performance review. Most
employees receive options annually based upon their
performance review rating and their level in the company.
Example B--Company B manages its program similarly to
company A, with some notable exceptions. Company B has a very
detailed performance management system, under which all
employees successfully meeting the expectations of their job
receive options. The employee's job expectations are more
clearly spelled out on an annual basis than under Company A's
plan. Once a year, the employee undergoes a formal, written,
performance review with his or her manager. If work is
satisfactory, the employee receives a predetermined but
unannounced number of options. Unlike Company A, which
provides different amounts of options to employees based upon
a numeric performance rating, Company B provides the same
number of options to all employees who receive satisfactory
employment evaluations. Over 90 percent of Company B's
employees receive options annually, and in many years, this
percentage exceeds 95 percent.
In both Example A and Example B, the employers set up in
advance the formula under which option decisions are made;
however, the decisions as to whether an individual employee
would receive options and how many options he or she would
receive was made based on past performance at the end of the
performance period, but not pursuant to a prior contractual
obligation made to the employees. The fact that the employer
determines a formula or program in advance does not
disqualify these examples from new section 7(e)(8).
I. Extra compensation
The Worker Economic Opportunity Act also amends section
7(h) of the FLSA (29 U.S.C. Sec. 207(h)) to ensure that the
income or value that results from a stock option, SAR or ESPP
program, and that is excluded from the regular rate by new
section 7(e)(8), cannot be credited by an employer toward
meeting its minimum wage obligations under section 6 of the
Act or overtime obligations under section 7 of the Act. The
language divides section 7(h) into two parts, 7(h)(1) and
7(h)(2). Section 7(h)(1) states that an employer may not
credit an amount, sum, or payment excluded from the regular
rate under existing sections 7(e)(1-7) or new section 7(e)(8)
towards an employer's minimum wage obligation under section 6
of the Act. When section 7(h)(1) is read together with
section 7(h)(2), it states that an employer may not credit an
amount excluded under existing sections 7(e)(1-4) or new
section 7(e)(8) toward overtime payments. However, consistent
with existing 7(h), extra compensation paid by an employer
under sections 7(e)(5-7) may be creditable towards an
employer's overtime obligations. This change shall take
effect on the effective date but will not affect any payments
that are not excluded by section 7(e) and thus are included
in the regular rate.
J. The legislation includes a broad pre-effective date safe
harbor and transition time
In drafting the Worker Economic Opportunity Act, the
sponsors hoped to create an exemption that would be broad
enough to capture the diverse range of broad-based stock
ownership programs that are currently being offered to non-
exempt employees across this nation. However, in order to
reach a consensus, the new exemption had to be tailored to
comport with the existing framework of the FLSA. The result
is a series of requirements that stock option, SAR and ESPP
programs must meet in order for the proceeds of those plans
to fit within the newly created exemption.
Because of the circumstances that give rise to this
legislation, the pre-effective date safe harbor is
intentionally broader than the new exemption. The sponsors
did not want to penalize those employers who have been
offering broad-based stock option, SAR and ESPP programs
simply because these programs would not meet all the new
requirements in section 7(e)(8). Thus, the safe harbor in
section 2(d) of the Act comprehensively protects employers
from any liability or other obligations under the FLSA for
failing to include any value or income derived from stock
option, SAR and ESPP programs in a non-exempt employee's
regular rate of pay. The safe harbor applies to all grants or
rights that were obtained under such programs prior to the
effective date, whether or not such programs fit within the
new requirements of section 7(e)(8). If a grant or right was
initially obtained prior to the effective date, it is covered
by the safe harbor even though it vested later or was
contingent on performance that would occur later. In
addition, normal adjustments to a pre-effective date grant or
right, such as those that are triggered by a
recapitalization, change of control or other corporate event,
will not take the grant or right outside the safe harbor.
On a prospective basis, the sponsors realized that many
employers would need time to evaluate their programs in light
of the new law and to make the changes necessary to ensure
that the programs will fit within the new section 7(e)(8)
exemption. Consequently, the sponsors adopted a broad
transition provision to apply to stock option, SAR and
ESPP programs without regard to whether or not they meet
the requirements for these plans set forth in the
legislation. Specifically, section 2(c) of the legislation
contains a 90-day post enactment delayed effective date.
The sponsors believe that the vast majority of employers
who offer stock option, SAR and ESPP programs to non-
exempt employees will be able to use the transition period
in section 2(d)(1) to modify their programs to conform
with the requirements of the legislation.
In addition, the sponsors felt that there were two
circumstances where a further extension of this broad
transition relief was appropriate. First, the legislation
recognizes that some employers would need the consent of
their shareholders to change their plans. Section 2(d)(2)
provides an additional year of transition relief to any
employer with a program in place on the date this legislation
goes into effect that will require shareholder approval to
make the changes necessary to comply with the new
requirements of section 7(e)(8). Second, the legislation
extends the transition relief to cover situations wherein an
employer's obligations under a collective bargaining
agreement conflict with the requirements of this Act. Section
2(d)(3) eliminates any potential conflict by allowing
employers to fulfill their pre-existing contractual
obligations without fear of liability.
V. Regulatory impact statement
The sponsors have determined that the bill would result in
some additional paperwork, time and costs to the Department
of Labor, which would be entrusted with implementation of the
Act. It is difficult to estimate the volume of additional
paperwork necessitated by the Act, but the sponsors do not
believe that it will be significant.
VI. Section-by-Section Analysis
Sec. 2. (a) Amendments to the Fair Labor Standards Act--The
legislation amends Section 7(e) of the Fair Labor Standards
Act of 1938 (29 U.S.C. Sec. 207(e)) by creating a new
subsection, 7(e)(8), which will exclude from the definition
of the regular rate of pay any income or value nonexempt
employees derive from an employer stock option, stock
appreciation right, or bona fide employee stock purchase
program under certain circumstances. Specifically, the
legislation adds the following provisions to the end of
Section 7(e) of the Fair Labor Standards Act:
(8) The new exclusion provides that when an employer gives
its employees an opportunity to participate in a stock
option, stock appreciation right or a bona fide employee
stock purchase program (as explained in the Explanation of
the Bill and Sponsor's Views), any value or income received
by the employee as a result of the grants or rights provided
pursuant to the program that is not already excludable from
the regular rate of pay under sections 7(e)(1-7) of the Act
(29 U.S.C. Sec. 207(e)), will be excluded from the regular
rate of pay, provided the program meets the following
criteria--
(8)(A) The employer must provide employees who are
participating in the stock option, stock appreciation right
or bona fide employee stock purchase program with information
that explains the terms and conditions of the program. The
information must be provided at the time when the employee
begins participating in the program or at the time when the
employer grants the employees stock options or stock
appreciation rights.
(8)(B) As a general rule, the stock option or stock
appreciation right program must include at least a 6 month
vesting (holding) period. That means that employees will have
to wait at least 6 months after they receive stock options or
a stock appreciation rights before they are able to exercise
the right for stock or cash. However, in the event that the
employee dies, becomes disabled, or retires, or if there is a
change in corporate ownership that impacts the employer's
stock or in other circumstances set forth at a later date by
the Secretary in regulations, the employer has the ability to
allow its employees to exercise their stock options or stock
appreciation rights sooner. The employer may offer stock
options or stock appreciation rights to employees at no more
than a 15 percent discount off the fair market value of the
[[Page S2581]]
stock or the stock equivalent determined at the time of the
grant.
(8)(C) An employee's exercise of any grant or right must be
voluntary. This means that the employees must be able to
exercise their stock options, stock appreciation rights or
options to purchase stock under a bona fide employee stock
purchase program at any time permitted by the program or to
decline to exercise their rights. This requirement does not
preclude an employer from automatically exercising
outstanding stock options or stock appreciation rights at the
expiration date of the program.
(8)(D) If an employer's grants or rights under a stock
option or stock appreciation right program are based on
performance, the following criteria apply.
(1) If the grants or rights are given based on the
achievement of previously established criteria, the criteria
must be limited to the performance of any business unit
consisting of 10 or more employees or of any sized facility
and may be based upon that unit's or facility's hours of
work, efficiency or productivity. An employer may impose
certain eligibility criteria on all employees before they may
participate in a grant or right based on these performance
criteria, including length of service or minimum schedules of
hours or days of work.
(2) The employer may give grants to individual employees
based on the employee's past performance, so long as the
determination remains in the sole discretion of the employer
and not according to any prior contract requiring the
employer to do so.
(b) Extra Compensation--The bill amends section 7(h) of the
Fair Labor Standards Act (29 U.S.C. 207(h) to make clear that
the amounts excluded under section 7(e) of the bill are not
counted toward an employer's minimum wage requirement under
section 6 of the Fair Labor Standards Act and that the
amounts excluded under sections 7(e)(1)-(4) and new section
7(e)(8) are not counted toward overtime pay under section 7
of the Act.
(c) Effective Date--The amendments made by the bill take
effect 90 days after the date of enactment.
(d) Liability of Employers--
(1) No employer shall be liable under the FLSA for failing
to include any value or income derived from any stock option,
stock appreciation right and employee stock purchase program
in an non-exempt employee's regular rate of pay, so long as
the employee received the grant or right at any time prior to
the date this amendment takes effect.
(2) Where an employer's pre-existing stock option, stock
appreciation right, or employee stock purchase program will
require shareholder approval to make to the changes necessary
to comply with this amendment, the employer shall have an
additional year from the date this amendment takes effect to
change its plan without fear of liability.
(3) Where an employer is providing stock options, stock
appreciation rights, or an employee stock purchase program
pursuant to a collective bargaining agreement that is in
effect on the effective date of this amendment, the employer
may continue to fulfill its obligations under that collective
bargaining agreement without fear of liability.
(e) Regulations--the bill gives the Secretary of Labor
authority to promulgate necessary regulations.
Submitted April 12, 2000 by the Sponsors of S. 2323.
Mitch McConnell.
Christopher J. Dodd.
James M. Jeffords.
Michael B. Enzi.
Footnotes
\1\ David Lebow et al., Recent Trends in Compensation
Practices, Board of Governors of the Federal Reserve System,
Fin. and Econ. Discussion Series, No. 1999-32, July 1999.
\2\ Anita U. Hattiangadi, Taking Stock: $470,000 at Risk for
Hourly Workers, Employment Policy Foundation, Mar. 2, 2000,
at 4, and Fig. 2.
\3\ Any stock option program that meets the criteria under
section 422 of the Internal Revenue Code (called an Incentive
Stock Option) is considered a qualified option. 26 U.S.C.
Sec. 422.
\4\ 26 U.S.C. Sec. 423.
\5\ 29 U.S.C. Sec. Sec. 201, et seq.
\6\ 29 U.S.C. Sec. 207(a)(1).
\7\ 29 U.S.C. Sec. 207(e).
\8\ 29 U.S.C. Sec. 207(e)(1).
\9\ 29 U.S.C. Sec. 207(e)(3).
\10\ Id.
\11\ Id.
\12\ 29 U.S.C. Sec. 207(e)(4).
\13\ See e.g., Conference Report on H.R. 5856, H. Rept. No.
1453.
\14\ U.S. Dept of Lab, Bureau of Lab. Statistics, Employer
Costs For Employee Conpensation--March 1999, available at
ftp://146.142.4.23/pub/news.release/ecec.txt.
\15\ A wage-hour opinion letter responds to a request for the
Department of Labor's view of how the law applies to a given
set of facts. The letters are available to the public upon
request or through commercial reporting services. Opinion
letters have significant practical effects: ``[T]he
Administrator's interpretation . . . has the characteristic
not only of securing `expected compliance' . . . but of
possibly stimulating double damage suits by employees who
need not fear that they would be at odds with the Government
Officials involved.'' National Automatic Laundry & Cleaning
Council v. Shultz, 143 U.S. App. D.C. 274 (D.C. Cir. 1971).
\16\ Letter from Daniel F. Sweeney, Office of Enforcement
Policy, Fair Labor Standards Team, Wage & Hour Division, Feb.
12, 1999.
\17\ Hearing on the Treatment of Stock Options and Employee
Investment Opportunities Under the Fair Labor Standards Act
before the House Committee on Education and the Workforce,
Subcommittee on Employment and Training, 106th Cong. 2d Sess.
Mar. 2, 2000 (Statement of T. Michael Kerr, at 4-5).
\18\ Id. at 5. The testimony also noted that the program's
automatic exercise feature prevented the employees'
participation from being voluntary, as required under the
Division's rules for thrift savings programs.
\19\ Letter from Daniel F. Sweeney, Office of Enforcement
Policy, Fair Labor Standards Team, Wage & Hour Division, Feb.
12, 1999.
\20\ Hearing on the Treatment of Stock Options and Employee
Investment Opportunities Under the Fair Labor Standards Act
before the House Committee on Education and the Workforce,
Subcommittee on Employment and Training, 106th Cong. 2d Sess.
Mar. 2, 2000 (Statement of J. Randall MacDonald, at 2).
\21\ Id. (addendum to statement of Patricia Nazemetz, Letter
from Gary J. Bonadonna, Director & International Vice
President, UNITE, February 22, 2000).
\22\ Id. (statement of T. Michael Kerr, at 7).
\23\ 26 U.S.C. Sec. 423.
Mr. McCONNELL. Mr. President, I yield the floor.
The PRESIDING OFFICER. The distinguished Senator from Connecticut,
Mr. Dodd, is recognized.
Mr. DODD. Mr. President, I appreciate how the Chair pronounces that
name so well. I am very grateful to the Chair.
I am deeply pleased to be joining my good friend and colleague from
Kentucky in authoring this legislation, along with several of our other
colleagues. Senator McConnell mentioned several of them. But certainly
Senator Enzi, Senator Bennett, Senator Robb, Senator Murray, Senator
Bingaman, Senator Reed, Senator Kerrey, among others are also
cosponsors of this bill.
I am also pleased to inform this body that the Clinton-Gore
administration is a strong backer of the Worker Economic Opportunity
Act, which is presently before us.
We have one of those unique opportunities that is not always
available to us in this Congress of the United States; that is, we are
actually going to do something this afternoon that couldn't have any
rancor associated with it. It will make a difference in the lives, we
think, of millions of people who would like to share in the remarkable
prosperity we are enjoying.
We are backed by the administration. It is a bipartisan effort in
this body. I am told that a similar version of this bill has been
introduced in the other Chamber, the House of Representatives.
This is actually something we may accomplish, and we are not packing
the galleries. It is not going to be a headline story tomorrow, but it
will make a difference in people's lives.
We are in a period of sustained economic growth, almost
unprecedented, if not unprecedented, in the 210-year history of our
Nation. The unemployment rate today at 4.1 percent is the lowest it has
been in 30 years. More than 21 million jobs have been created since
1993.
I see my colleague and good friend from Wyoming here. He is one of
the cosponsors of this bill as well. I mentioned him earlier. We are
pleased he is with us.
We are enjoying almost unprecedented prosperity in the country along
with the remarkable results of low unemployment, the lowest in some
three decades. More than 21 million new jobs have been created in the
last 7 years in our Nation. Inflation is down, and real wages are
rising and have grown in 5 consecutive years; again, almost an
unprecedented record in our Nation's history.
For the first time in 50 years, the country posted three consecutive
surpluses. Think of that. For the first time in decades, we are
watching the deficit clock run in the opposite direction. Instead of
how much debt we are accumulating every minute and every second, we are
now reducing the national debt with the prospect of eliminating it by
the year 2013.
What greater gift could we give to the next generation than to burn
the national mortgage, if you will. The economy is roaring. It is
producing a prosperity in the confidence which very few people could
have imagined a few short years ago.
Factory workers, secretaries, and other nonexempt workers form the
backbone of companies, large and small, that are also making a
difference. These individuals have been driving our economy. It is the
view of those who sponsor this bill since they are driving so much of
this economy, they ought not to have to take a back seat to anyone in
sharing in the prosperity this economy has produced.
In today's new economy, many companies look for creative ways to
recruit, train, and reward employees. The Federal Reserve Board of
Governors estimated approximately 17 percent of large firms in the
United States introduced a stock option program and 37
[[Page S2582]]
percent have broadened eligibility for the stock option programs in the
previous 2 years.
Ten years ago these options were a perk for the chief executive
officer and other corporate executives in the corporation. Less than 1
million people received stock options in the early 1990s. Today,
between 7 and 10 million people across this country are offered stock
options. According to the National Center for Employee Ownership, more
than 6 million workers receiving options are nonexecutives. In a 1997
survey, NECO reported that the average option grant value was $37,000
for professional employees, $41,000 for technical employees, and
$12,500 for administrative employees.
This is very good for the long-term economic prospects in this
country.
Clearly, the trend is that a broad cross section of companies offers
stock option programs. In these changing times, I am concerned, as is
my colleague from Kentucky and others, about laws working for
businesses and employees. We need to work with them to find new ways to
reward working people. As the economy changes, it is only fitting we
update our laws, as well. That is why I join with my colleagues, and
why others have joined, why the administration has joined, to change
the 1938 Fair Labor Standards Act.
The Fair Labor Standards Act of 1938 is the benchmark of worker
protection laws. I want to make very clear that the bill that is before
the Senate today, S. 2323, does absolutely nothing to undermine the
foundation of that critical and important piece of legislation.
My colleagues in the administration determined that the 1938 law
needed to be amended in order to incorporate the emergence of stock
option programs being offered to hourly employees. Our bill amends the
Fair Labor Standards Act to clarify that the gains from stock options
do not need to be included in the calculation of overtime pay. That is
what the 1938 law said. That is where a lot of the confusion arose.
Our legislation strikes a balance between protecting employee rights
and offering flexibility to employers. This bill excludes from the
regular rate stock options, stock appreciation rights or bona fide
stock purchase programs that meet specific vesting, disclosure and
determination requirements. A safe harbor is in effect to protect those
companies that already had established stock option programs for
nonexempt employees, including those programs provided under a
collective bargaining agreement or requiring shareholder approval.
I would like to commend the staff for their hard work on this bill--
Sheila Duffy of my staff, Denise Grant with Senator McConnell, and
Leslie Silverman and Elizabeth Smith with the HELP Committee.
This proposal has broad bipartisan, bicameral support between the
executive and legislative branches.
I ask unanimous consent two letters, one from the Union of the
Needletrades, industrial and textile employees, and one from the ERISA
Industry Committee, be printed in the Record.
There being no objection, the letters were ordered to be printed in
the Record, as follows:
Union of Needletrades, Industrial and Textile Employees,
Rochester Regional Joint Board,
Rochester, NYC, February 22, 2000.
To Whom It May Concern: I am writing on behalf of UNITE and
its approximately 5,300 United States bargaining unit
employees covered by a contract with Xerox Corporation. It is
our understanding that Congress is currently considering
legislation to clarify the Fair Labor Standards Act (FLSA)
treatment of stock options and other forms of stock grants in
computing overtime for non-exempt workers Xerox' UNITE
chapter would strongly urge Congress to pass legislation
exempting stock options and other forms of stock grants from
the definition of the regular rate for the purpose of
calculating overtime.
It is only recently that Xerox has made bargaining unit
employees eligible to receive both stock options and stock
grants. Without a clarification to the FLSA, we are afraid
Xerox may not offer stock options or other forms of stock
grants to bargaining unit employees in the future. In
addition, without such a change in the law if options are
granted there could be tremendous differentials in the amount
of overtime each individual employee received based on what
he or she decides to exercise an option or sell stock.
However, our position that stock options should be exempt
from the regular rate for purposes of overtime in no way
diminishes our position that bargaining unit employees must
have the right to receive overtime pay for actual hours.
As we begin the 21st century, UNITE hopes more companies
will begin to provide all their employees with stock options
and other forms of stock. It is a great way to assure that
when the company does well the employees share the reward
through employee ownership. Thank you for your consideration
of this matter.
Sincerely,
Gary J. Bonadonna,
Director,
International Vice President.
____
The ERISA Industry Committee,
Washington, DC April 10, 2000.
Dear Senator: The ERISA Industry Committee (ERIC) strongly
urges you to support S. 2323, the ``Worker Economic
Opportunity Act.'' S. 2323 is expected to come before the
Senate for a vote during the week of April 10. Timely
enactment of this legislation is critical to the continued
viability of broad-based stock options and other similar
programs that provide employees with equity ownership in the
companies for which they work.
Introduced March 29 by Senator Mitch McConnell, the
``Worker Economic Opportunity Act'' enjoys strong bipartisan
and bicameral support. The bill is the result of a
cooperative effort between congressional leaders, the
Department of Labor, and the business community.
Stock options increasingly are available to a broad range
of employees, not just executives. A recent survey by William
M. Mercer, Inc. reports a better than twofold increase since
1993 in the percentage of major industrial and service
corporations that have a broad-based stock option plan.
In spite of the growing enthusiasm for employee equity
ownership among employers and employees, an advisory letter
interpreting current law issued by the Department of Labor's
Wage and Hour Division has effectively stopped this movement
in its tracks.
According to the Department's interpretation of the Fair
Labor Standards Act (FLSA) of 1938, any gains from the
exercise of stock options recognized by rank and file workers
must be included in their ``regular rate of pay'' for
purposes of computing overtime wages. Thus, in order to
comply with the Wage and Hour Division's interpretation of
the FLSA, employers would be required to track stock options
granted to rank and file employees and recalculate their
overtime payments once the options have been exercised.
No rational employer will subject itself to this
impracticable burden. As a result, rank and file workers will
be denied the valued opportunity to become a stakeholder in
their employer's future.
S. 2323 is narrowly tailored to directly address the issues
raised by the Wage and Hour Division's advisory letter
without compromising any long-standing worker protections
under FLSA. Most important, this legislation will benefit
millions of working Americans by facilitating the continued
expansion of equity-based compensation programs. It should be
enacted without delay.
Thank you for considering our views. Please feel free to
call on us if you have any questions or need additional
information.
Very truly yours,
Mark J. Ugoretz,
President.
Mr. DODD. Mr. President, this bill is about fundamental fairness. I
urge our colleagues to support this Worker Economic Opportunity Act to
give working Americans a chance to share in our Nation's prosperity.
I ask further unanimous consent that during the remainder of this
debate and the remainder of the day the bill be left open for
additional cosponsorships. We have 20 or 30, but I suspect there may be
others who would like their names associated with this bill. I ask
unanimous consent cosponsorship of the bill be left open for the
remainder of today's legislative business.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DODD. I yield the floor.
The PRESIDING OFFICER (Mr. Roberts). The distinguished Senator from
Vermont is recognized.
Mr. JEFFORDS. Mr. President, I commend the Senator from Connecticut
and the Senator from Kentucky for their work on the bill being
presented today. We are here today because we believe that all workers
should have the opportunity to share in the success of their companies
and it is incredibly important we do all we can to make sure that this
legislation gets passed with the vote it deserves.
More and more employers are providing equity ownership opportunities
to all of their employees and we are here today because we want to
foster this trend which is good for our workers and for our nation's
economic growth. The Worker Economic Opportunity Act will encourage
this trend by changing the Fair Labor Standards Act
[[Page S2583]]
to address the needs of the 21st century.
Over the last ten years, we have witnessed tremendous change in the
structure of our Nation's economy in large part due to the birth of the
internet and e-commerce. The vitality of our economy is a tribute to
the creative and entrepreneurial genius of thousands of individual
business people and the indispensable contribution of the American
workforce.
As legislators during this exciting time, we are challenged to
maintain an environment that will foster the continued growth of our
economy. We must work to ensure that our laws are in sync with the
changing environment. However, many of the laws and policies governing
our workplace have fallen out of sync with the information age and
there has been particular resistance to changing our labor laws. As
chairman of the Senate Committee with jurisdiction over workplace
issues, I believe it is time to examine and modify these laws to meet
the rapidly evolving needs of the American workforce.
The Fair Labor Standards Act (FLSA), for example, was enacted in the
late 1930s, to establish basic standards for wages and overtime pay.
While the principles behind the FLSA have not changed, its rigid
provisions make it difficult for employers to accommodate the needs of
today's workforce. In early January, we discovered the problem that we
are addressing here today. It is extremely important. We learned that
the sixty-year old law actually operates to deter employers from
offering equity participation programs, such as stock options, to
hourly employees.
These programs are most prevalent in the high tech industry, yet
increasingly employers across the whole spectrum of American industry
have begun to offer them. And, while these programs used to be reserved
for executives, recent data shows that they are making their way down
the corporate ladder. A recent Federal Reserve Board of Governors study
found that 17% of firms have introduced stock options programs within
the last two years and 37% have broadened eligibility for their stock
option programs in the last two years.
Broad-based equity programs prove valuable to both employers and
employees. For employers, these programs have become a key tool for
employee recruitment, motivation and retention. Employees seek out
companies offering these programs because they enable workers to become
owners and reap the benefits of their company's growth.
When I first heard about the FLSA's application to stock options, I
became very concerned about its impact on our workforce. I was pleased
to discover that Senators McConnell, Dodd, and Enzi shared similar
concerns and that the Department of Labor also recognized that we had a
problem on our hands that would require a legislative solution.
Together we crafted the legislation we are debating here today.
We have also worked together on a Joint Statement of Legislative
Intent on S. 2323 which is intended to reflect the discussions the
sponsors had with the Department of Labor during the drafting of the
legislation, and the sponsors' intent and understanding of this
legislation.
I urge all my colleagues to join me in supporting this important
legislation. It is a symbolic first step in the process of aligning our
labor laws with the new economy.
I commend the Senator from Wyoming who is one of the initial people
who understood the importance of this issue and who came forward to
help other Members understand the dangers of the present situation and
to bring about the bill we have before the Senate. I am happy to yield
the floor to my wonderful Senator from Wyoming.
The PRESIDING OFFICER (Mr. Gregg). The distinguished Senator from
Wyoming is recognized.
Mr. ENZI. Mr. President, I commend the chairman of the Health,
Education, Labor, and Pensions Committee, the jurisdictional committee,
for this very important piece of legislation. I appreciate his allowing
me to be the subcommittee chairman for the labor portion of that
committee, which is referred to as the Employment, Safety and Training
Subcommittee. We get to work on these kinds of issues on a regular
basis. In the past, it has been known as one of the more contentious
committees. But I recommend people take a look and note it is one of
the more reasonable committees now, where we are reaching bipartisan
solutions to problems for people in the workplace. That has always been
our intent. We are actually having some confidence in each other now
and are able to achieve those sorts of things.
I am pleased to be able to rise today to speak in favor of S. 2323,
the Worker Economic Opportunity Act. The large number of bipartisan
cosponsors on this bill says a great deal for both its importance and
its balanced, fair nature. I commend the hard work of my colleagues,
Senator Jeffords, Senator McConnell, and Senator Dodd, both in crafting
a solution on the issue and in garnering the bipartisan support for the
bill.
Elizabeth Smith, the legal counsel for the Employment, Safety and
Training Subcommittee, has been one of the coordinators of the bill and
has helped us to bring it all together. That is not only coordination
between the House and Senate, between Republicans and Democrats, but it
is also with the administration. A few days ago we had an opportunity
to gather and talk about this bill and Secretary Herman was there, and
she has played a role in getting this done.
The problem was brought to us from where it should come, and that is
the workers. Workers were being told that because of the labor laws,
their employers may have to stop giving them stock options.
That is an important factor because stock options are seen as a way
for people throughout this country, workers throughout this country, to
own a share of the company. The better the company does, the better
they do. It is a way that from their job, and the risk they take having
that job, employees get to benefit from the productivity and returns
they put into the business.
And, boy, some of these businesses are really doing well;
millionaires are being created overnight--and we want hourly workers to
be able to take advantage of those stock options.
A little flaw, because of the amount of time that has gone by since
fair labor standards passed, said you will have to do some calculating
so the value of that stock option shows up as a direct payment.
Nobody really knows what the value of those stock options are,
particularly at the time they receive them. They do know sometime down
the road, when they take advantage of them, and probably even further
down the road when they actually get to sell them, but there is a huge
change, hopefully, in the value of that stock between the time it is
awarded to them and the time there is some value to it. So how do you
calculate that back in years, to the time they received it, to
calculate it into overtime? The difficulty of calculating it led the
companies to say: We can't figure out a formula for doing it. The
Department has a formula for doing it, but we can't possibly process
that through so we can avoid court action. So what we are going to do
is we are going to end stock options. That is when the workers said to
Congress: Solve this problem for us.
That is what brings everybody together for a solution, the people at
the far end asking that they be allowed to continue participating in
the prosperity of this country. That is what has happened in this
instance. We are here today because the workplace has changed for the
better, but the labor statutes have not. Many employers now give stock
options, not only to the executives and the managers, they give it to
secretaries, factory workers, janitors, mailroom clerks--everybody.
Those are the hourly employees who provide the critical support on
which a company's success is built.
I am proud of those employers who give stock options to those
employees. They recognize the value of giving workers a stake in the
company's business. They are leading the charge to move workplaces into
a new, modern era of better employer-employee relations. In fact, the
line is dimming on who is the employer and who is the employee.
Unfortunately, the decades-old Fair Labor Standards Act has not kept
pace. This statute, drafted during a very different time in the history
of the American workplace, threatened to prevent employers from giving
hourly employees stock options. S. 2323 removes this threat and ensures
that
[[Page S2584]]
companies can continue to give stock options to hourly employees so
they can share in the success of their employer and this country's
economic growth.
This legislation takes an important step toward bringing an outdated
labor statute up to date with the modern workplace. I am very concerned
there are many other examples of problems such as the one we are
solving today, examples of other obsolete restrictions in the 30- to
60-year-old labor statutes that are stifling the development of the new
creative ways to benefit employees, such as the stock options program
and telecommuting arrangements. We should be encouraging these advances
in employer-employee relations, not stifling them. By passing this
Worker Economic Opportunity Act we can provide encouragement. I hope we
can continue to look for ways to solve similar problems.
I am particularly pleased the Department of Labor has worked with us
in this bipartisan group. As chairman of the Employment, Safety and
Training Subcommittee, I firmly believe cooperation between lawmakers
and agency is the best way to develop practical solutions that benefit
both the employees and the businesses.
I want to mention we have been doing that for about 2 years now. We
passed the first changes in OSHA in 27 years, a year and a half ago;
little incremental changes that will make a difference to the workers,
that will make the workplace safer. That is what we are trying to do.
Recently we worked together on home inspections. OSHA, through a
letter, had suggested they were going to go into the homes and check
and see how telecommuters were operating. Home is the least safe place
there is. It worried a lot of companies about how they were going to do
the inspections without imposing on the privacy of their employees.
Employees were worried about companies coming into their homes. The
Department and OSHA and Congress saw the error of that. The Department
withdrew the letter. Both OSHA and congress agreed that OSHA should not
be a threat to people working in their home offices. People who work in
their homes really enjoy doing that. There are a lot of benefits to
them, many of which people who work in the District would understand
because of the parking and the traffic problems. I was very pleased
that the agency and congress agreed on this.
Last week we had agreement on a funding proposal, a sense-of-the-
Senate proposal that would have been on the budget agreement except for
a parliamentary move that was done at the last moment. But there was
agreement on both sides that there needs to be not only enforcement of
OSHA--which does get attention--but justification by OSHA of how it is
reducing workplace illnesses and injuries and a discussion of the value
of compliance assistance activities, which are extremely important.
There are 12,000 pages of OSHA regulations. It is difficult for a
small businessman to make it through that many pages of that kind of
rhetoric. So we have been trying to make it more incentive-based, so
the agency would participate more in telling them what they need to do
instead of beating them over the head for what they did not do. We
think, with a more cooperative program, there will be more safety in
the workplace; that employers will not live in fear of OSHA, but rather
in anticipation of help from OSHA and an understanding of the way they
can keep their employees safe.
Those are a few of the things we are working together on to have a
better workplace. This legislation is a key piece and a key beginning
to a number of changes we can make to affect the workers of this
country. I look forward to working together on similar measures in the
future as we move toward the shared goal of better matching our Federal
laws to the needs of the modern workplace.
I yield the floor.
Mr. JEFFORDS. Mr. President, I commend the Senator from Wyoming for
his work not only on this bill but on the other legislation he
discussed. I also commend him for his help in the review of existing
labor laws. The Senator understands the import of bringing our labor
laws in line with the needs into the 21st Century. I depend upon him,
and he produces.
Mr. ABRAHAM. Mr. President, I rise today to express my support for
the Worker Economic Opportunity Act. This bipartisan legislation, also
supported by the Department of Labor, will encourage employers to
provide stock options to all employees, not just executives, ensuring
that all of our workers will continue to have the opportunity for an
ownership stake in their company.
In recent years, there have been revolutionary changes in the
workplace, creating new opportunities for our working families--
opportunities, which for a long time, frequently existed only for a
select privileged few. One of the most positive developments has been
the significant increase in the availability of stock option plans for
workers, specifically hourly workers.
The decades-old employment laws do not accommodate newer workplace
innovations and their application would unfairly punish hourly workers
by making their stock-option programs disproportionately expensive and
complex for employers. Subsequently, recent Department of Labor legal
interpretations and policies have threatened the availability of stock
option plans for hourly employees.
Mr. President, it is imperative that Congress send a clear message
that the positive developments taking hold around the country should be
encouraged, not thwarted.
The Worker Economic Opportunity Act would send just a message,
ensuring that all employees will continue to have the opportunity to
share in the economic growth and success of their company formerly
enjoyed only by corporate executives. Moreover, companies, especially
smaller companies with high capital costs in development, will be able
to maintain the capital resources necessary to compete in the rapid
evolving global economy and, at the same time, reward and retain highly
qualified and valued employees.
Finally, Mr. President, I would like to take a moment to thank
Senator McConnell for his work and dedication toward this legislation
and the Department of Labor for recognizing the need to accommodate
today's employee and workplace innovations.
I yield the floor.
Ms. COLLINS. Mr. President, I rise today to express my strong support
for S. 2323, the Worker Economic Opportunity Act. I am pleased to be a
cosponsor of this legislation, which has broad bipartisan support in
both the Senate and the House of Representatives.
In recent years, we have seen substantial growth in the use of
employee equity programs such as stock options, stock appreciation
rights, and employee stock purchase plans. This growth has not only
been in the number of companies which offer such plans, but also in the
employees to whom such plans are available. While long used as a form
of incentive for corporate executives, equity programs are now
available to more employees than ever. In fact, a 1998 survey by Hewitt
Associates found that in excess of two-thirds of large U.S. companies
offered stock options to non-executive employees, and more than a
quarter of these companies make such plans available to their entire
workforce.
Unfortunately, the Fair Labor Standards Act, which was enacted in
1938, does not recognize the importance of stock options as an employee
benefit. Thus, when asked how to deal with stock options when
calculating overtime pay for hourly-wage employees, the Department of
Labor ruled that the options would have to be included in the
calculations.
The end result of this decision left employers with two options: One,
go through the burdensome task of recalculating an employee's regular
pay rate, retroactively, based on the change in the value of the stock
from the time the option was granted until it was exercised; or, two,
do not offer any form of equity program to any employee who is not
exempt from the Fair Labor Standards Act.
Since complying with the Department of Labor's onerous ruling would
not likely be worth the benefit of offering an equity plan, the vast
majority of companies would be left to face option two, thus
eliminating the use of a benefit that is popular with both employers
and employees.
Recognizing the need to remedy this matter, for the good of companies
and workers alike, a bipartisan group of
[[Page S2585]]
legislators worked to craft the bill we have before us today, the
Worker Economic Opportunity Act. This legislation would exempt employee
equity programs from the overtime requirements of the Fair Labor
Standards Act, just as profit sharing and holiday bonus plans are
exempted. In addition, the bill protects employers who offered employee
equity programs prior to the date this legislation is enacted.
This legislation will allow employers to offer the kind of benefits
which will allow them to attract a quality workforce, while providing
employees with a benefit they truly want. It is all too rare for
Congress to come up with a win-win solution to a problem, but in this
case we certainly have.
Mr. President, I urge my colleagues to support this important
legislation.
Mr. KENNEDY. Mr. President, since its enactment in 1938, the Fair
Labor Standards Act has played a fundamental role in ensuring a fairer
standard of living for all American workers. The act created basic
rights for workers by establishing a federal minimum wage, a 40 hour
work week and overtime pay for additional hours. It also protects
children from abusive working conditions and helps ensure that women
and men receive equal pay. Throughout its existence, the act has been
indispensable in improving the standard of living for vast numbers of
Americans.
The Department of Labor has effectively carried out its
responsibility to interpret the law with this purpose in mind. Given
the high value of the act in protecting workers' rights to a fair
workplace, Congress must remain vigilant to ensure that any changes in
this important law do not undermine the wage and hour protections
guaranteed to workers under the act.
I support the current bill because it helps ensure that employers
cannot misuse the act as an excuse to exclude rank and file workers
from the stock option plans, stock appreciation rights, and stock
purchase plans they provide to higher paid employees.
I commend Senator Dodd, Senator Jeffords, Senator Enzi, and Senator
McConnell for developing this narrow, but important, clarification of
the act. It is a needed modernization of the law, and it arose from
unique circumstances. I am confident that the Secretary of Labor will
promulgate regulations interpreting this bill in a way that protects
the fundamental right of workers to receive overtime pay and not be
forced to work overtime to participate in stock plans. It is of the
utmost importance that any change in the act serves to strengthen the
protections for workers, not weaken them.
Ms. SNOWE. Mr. President, I rise today to express my support for the
Worker Economic Employment Opportunity Act. Mr. President, every time
we turn around it seems that we hear about how strong our nation's
economy is right now--and how America's workers are daily facing new-
found employment opportunities. We are in a period of almost
unprecedented prosperity and sustained economic growth. And the bill we
are voting on today is a direct consequence of that growth.
It wasn't long ago that benefits such as stock options were available
only to the upper levels of management. Companies are now offering
stock options as a way not only to attract, but to retain quality
employees at all levels. This is a way of providing fairness to our
nations workers--the ones who manage the daily ins-and-outs of the
business, the ones who have quite literally built today's economy.
S. 2323 will clarify that providing stock options will not be counted
toward overtime pay for hourly employees. The vitality of our economy
is a tribute to the hard work and creativity of these workers.
Accordingly, it is unacceptable that the Fair Labor Standards Act would
be interpreted in a manner that would effectively preclude the offering
of this valuable benefit to hourly employees who form the backbone of
American business.
The Fair Labor Standards Act already exempts some employee benefits
such as discretionary bonuses, health insurance, and retirement savings
plans from overtime calculations. We do this to encourage employers to
provide these critically needed benefits and incentives for their
employees--stock options should be no different.
We should not hinder the ability of our nation's workers to
participate in the economic success of the companies they are helping
to building. If employers choose to offer profit-sharing options, they
should not be penalized when calculating over-time wages.
Mr. President, I support this critical clarification of the Fair
Labor Standards Act and I urge my colleagues to vote for the bill.
Thank you, Mr. President, I yield the floor.
Mr. BENNETT. Mr. President, I rise today to support Senator
McConnell's stock options legislation, S. 2323, and commend him for his
hard work on this issue. This legislation allows companies who
currently offer non-salaried employees a stock options program to
continue to incentivize their work force without the threat of
sanctions of the U.S. Department of Labor.
This is an easy one to support. The United States is unique in the
world with regard to how our stock options and the wealth generated in
our companies are shared with those who significantly participate in
their creation. As in most of the rest of the world, it used to be that
only our top executives received stock options from their companies.
Today, many high tech companies offer stock options to all of their
employees, from the clerk to the CEO. Particularly with regard to an
individual's retirement needs, stock options are a tremendous financial
opportunity for all workers and their families. We must do everything
in our power to preserve these positive wealth- and risk-sharing
developments in our economy.
Employees at every level should be allowed to reap the rewards of the
success of their company. All throughout the United States, it has
become common place for employees to quit their job and go to work for
progressive companies who allow them to share in the wealth that their
corporations generate. I hear repeatedly from industrial companies
whose compensation structure is often very different, that they are
losing their most talented and valuable employees to these new, often
high-tech, corporations. And Mr. President, that kind of competition
for employees benefits all Americans and it's a positive development.
The Department of Labor's ill-considered advisory opinion, threatened
this development, and would have resulted in the cessation of often
generous stock option plans for non-managerial and non-professional
employees in many of America's most progressive corporations. It is
critical that we recognize the importance of these wealth- and risk-
sharing developments to the health of the American economy and
carefully weigh each new regulation, interpretation, and law before we
rashly risk the financial health and well-being of the hard-working
families who have everything to do with the level of productivity our
economy enjoys.
Mr. LEVIN. Mr. President, I will vote in favor of the Worker Economic
Opportunity Act, S. 2323. Stock options have traditionally been
distributed only to highly salaried executives, used as an incentive to
promote hard work on behalf of the company. As a company's bottom line
improves due in part to the executive's efforts, the value of the
company's stock increases, eventually rewarding the executive when he
or she ultimately exercises the option and later sells the stock. I
have long maintained that stock options ought be provided to all types
of employee--whether hourly or salaried, management or clerica--and not
just the top brass. That is why I introduced the Ending the Double
Standards for Stock Options Act last Congress, which would have
encouraged corporations to adopt plans in which a minimum of 50% of all
options would go to non-management employees. After all, a company's
success depends on the efforts of more than just its executives.
I am hopeful that the Worker Economic Opportunity Act will encourage
the growth of broad-based employee stock option plans in corporate
America. The Act excludes stock options from overtime pay calculations
for hourly employees. Current law also excludes benefits like
discretionary bonuses, employer-provided health insurance, and
retirement benefits from overtime pay rates. But current law doesn't
address stock options. Last year, the Department of Labor indicated
that, without action by Congress, companies would likely have to
include the value of stock options when figuring an hourly employee's
overtime
[[Page S2586]]
pay rate. Corporate America has argued that the administrative and
financial burdens associated with such inclusion, given a huge number
of different employees having different amounts of options with
different exercise dates and strike prices, outweigh the benefits of
having a broad-based stock option plan.
This legislation is not inconsistent with my proposal to require the
reporting of stock options as an expense on a company's financial
statements, a key part of the Ending the Double Standards for Stock
Options Act. Therefore, I support the Worker Economic Opportunity Act
to remove a potential barrier to workers' participation in the
prosperous American economy they helped create.
Mr. JEFFORDS. Mr. President, I ask unanimous consent that for the
next 5 minutes the time be held open, and then at 2:05 p.m. I will
yield back all the time on the measure, and I ask unanimous consent
that there be a period for morning business from 2:05 p.m. until 2:30
p.m., with the time equally divided.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. JEFFORDS. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. JEFFORDS. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. JEFFORDS. Mr. President, what is the order of business?
The PRESIDING OFFICER. Before the Senate is S. 2323.
The bill is before the Senate and open to amendment. If there be no
amendment to be proposed, the question is on the engrossment and third
reading of the bill.
The bill was ordered to be engrossed for a third reading and was read
the third time.
Mr. JEFFORDS. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The question is on the passage of the bill.
The clerk will call the roll.
The bill clerk called the roll.
Mr. NICKLES. I announce that the Senator from Delaware (Mr. Roth) and
the Senator from Maine (Ms. Snowe) are necessarily absent.
Mr. REID. I announce that the Senator from Massachusetts (Mr. Kerry),
the Senator from New York (Mr. Moynihan), the Senator from West
Virginia (Mr. Rockefeller) are necessarily absent.
The PRESIDING OFFICER. Are there any other Senators in the Chamber
desiring to vote?
The result was announced--yeas 95, nays 0, as follows:
[Rollcall Vote No. 81 Leg.]
YEAS--95
Abraham
Akaka
Allard
Ashcroft
Baucus
Bayh
Bennett
Biden
Bingaman
Bond
Boxer
Breaux
Brownback
Bryan
Bunning
Burns
Byrd
Campbell
Chafee, L.
Cleland
Cochran
Collins
Conrad
Coverdell
Craig
Crapo
Daschle
DeWine
Dodd
Domenici
Dorgan
Durbin
Edwards
Enzi
Feingold
Feinstein
Fitzgerald
Frist
Gorton
Graham
Gramm
Grams
Grassley
Gregg
Hagel
Harkin
Hatch
Helms
Hollings
Hutchinson
Hutchison
Inhofe
Inouye
Jeffords
Johnson
Kennedy
Kerrey
Kohl
Kyl
Landrieu
Lautenberg
Leahy
Levin
Lieberman
Lincoln
Lott
Lugar
Mack
McCain
McConnell
Mikulski
Murkowski
Murray
Nickles
Reed
Reid
Robb
Roberts
Santorum
Sarbanes
Schumer
Sessions
Shelby
Smith (NH)
Smith (OR)
Specter
Stevens
Thomas
Thompson
Thurmond
Torricelli
Voinovich
Warner
Wellstone
Wyden
NOT VOTING--5
Kerry
Moynihan
Rockefeller
Roth
Snowe
The bill (S. 2323) was passed, as follows:
S. 2323
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 ``Worker Economic Opportunity
Act''.
SEC. 2. AMENDMENTS TO THE FAIR LABOR STANDARDS ACT OF 1938.
(a) Exclusion From Regular Rate.--Section 7(e) of the Fair
Labor Standards Act of 1938 (29 U.S.C. 207(e)) is amended--
(1) in paragraph (6), by striking ``or'' at the end;
(2) in paragraph (7), by striking the period and inserting
``; or''; and
(3) by adding at the end the following:
``(8) any value or income derived from employer-provided
grants or rights provided pursuant to a stock option, stock
appreciation right, or bona fide employee stock purchase
program which is not otherwise excludable under any of
paragraphs (1) through (7) if--
``(A) grants are made pursuant to a program, the terms and
conditions of which are communicated to participating
employees either at the beginning of the employee's
participation in the program or at the time of the grant;
``(B) in the case of stock options and stock appreciation
rights, the grant or right cannot be exercisable for a period
of at least 6 months after the time of grant (except that
grants or rights may become exercisable because of an
employee's death, disability, retirement, or a change in
corporate ownership, or other circumstances permitted by
regulation), and the exercise price is at least 85 percent of
the fair market value of the stock at the time of grant;
``(C) exercise of any grant or right is voluntary; and
``(D) any determinations regarding the award of, and the
amount of, employer-provided grants or rights that are based
on performance are--
``(i) made based upon meeting previously established
performance criteria (which may include hours of work,
efficiency, or productivity) of any business unit consisting
of at least 10 employees or of a facility, except that, any
determinations may be based on length of service or minimum
schedule of hours or days of work; or
``(ii) made based upon the past performance (which may
include any criteria) of one or more employees in a given
period so long as the determination is in the sole discretion
of the employer and not pursuant to any prior contract.''.
(b) Extra Compensation.--Section 7(h) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 207(h)) is amended--
(1) by striking ``Extra'' and inserting the following:
``(2) Extra''; and
(2) by inserting after the subsection designation the
following:
``(1) Except as provided in paragraph (2), sums excluded
from the regular rate pursuant to subsection (e) shall not be
creditable toward wages required under section 6 or overtime
compensation required under this section.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date that is 90 days after the date
of enactment of this Act.
(d) Liability of Employers.--No employer shall be liable
under the Fair Labor Standards Act of 1938 for any failure to
include in an employee's regular rate (as defined for
purposes of such Act) any income or value derived from
employer-provided grants or rights obtained pursuant to any
stock option, stock appreciation right, or employee stock
purchase program if--
(1) the grants or rights were obtained before the effective
date described in subsection (c);
(2) the grants or rights were obtained within the 12-month
period beginning on the effective date described in
subsection (c), so long as such program was in existence on
the date of enactment of this Act and will require
shareholder approval to modify such program to comply with
section 7(e)(8) of the Fair Labor Standards Act of 1938 (as
added by the amendments made by subsection (a)); or
(3) such program is provided under a collective bargaining
agreement that is in effect on the effective date described
in subsection (c).
(e) Regulations.--The Secretary of Labor may promulgate
such regulations as may be necessary to carry out the
amendments made by this Act.
Mr. LOTT. I move to reconsider the vote.
Mr. JEFFORDS. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
____________________