Originally created 05/04/02

Greenspan urges changes in stock option reporting

WASHINGTON - Federal Reserve Chairman Alan Greenspan on Friday argued that to help deal with problems raised by the costly collapse of Enron Corp., regulations should be changed to force companies to treat lucrative stock options for top executives as a business expense.

Without that change, which is opposed by the business community, investors will continue to receive inaccurate information on the true financial status of a company, Mr. Greenspan said.

The debate over stock options has taken on new urgency since the December collapse of Enron Corp., the largest corporate bankruptcy ever. Enron executives reaped millions of dollars in profits by cashing in their stock options before the company's share price plummeted.

"The failure to expense stock option grants has introduced a significant distortion in reported earnings and one that has grown with the increasing prevalence of this form of compensation," Mr. Greenspan said in a speech to a financial markets conference convened by the Federal Reserve Bank of Atlanta.

In his remarks, Mr. Greenspan expanded on arguments he made in late March that the current practice of not counting stock options as a business expense was inflating corporate profits and giving investors a false impression of a company's true value.


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