May 5, 2002	Sunday	Safar 21, 1423

SEA ISLAND, May 4: Federal Reserve Chairman Alan Greenspan on Friday urged US regulators to overhaul rules on stock options to corporate officers, saying the Enron debacle shows the need to get rid of accounting distortions.

The Fed chief said the current system — which does not force companies to count stock options granted to their officers as an expense — skews the corporate profit picture and poses risks to the marketplace.

I fear that the failure to expense stock option grants has introduced a significant distortion in reported earnings — and one that has grown with increasing prevalence of this form of compensation, Greenspan told a financial-markets conference convened here by the Fed Bank of Atlanta.

The venerated US central bank chairman faces an uphill battle on the options accounting issue, in part because the Bush administration wants to keep the status quo and a powerful array of companies oppose any changes.

Lining up on his side is multibillionaire Warren Buffett, who has long spurned stock options as a form of executive compensation. The UK-based International Accounting Standards Board, a global group whose views carry clout in accounting circles, is urging consideration of changing options accounting.

Greenspan said it is “critically important” that companies be made to list the cost of stock options with other operating expenses, such as salaries and bonuses.

Most firms issuing the lucrative perks do not count them as a cost against profits, but separately disclose their potential impact on share value.

Stock options — doled out by the boatload to corporate officers in the 1990s — are securities that let you buy a stock in the future for a fixed price. In the Enron scandal and other incidents, executives have been accused of pumping stock prices by questionable means, then cashing in their options and leaving investors holding the bag.

Greenspan did not discuss the economy or interest rates in the speech, nor did he mention the Labor Department’s report showing a jump in the US unemployment rate to 6 per cent in April from March’s 5.7 per cent, and an increase of 43,000 in US payroll jobs.

Speaking out on an issue some blame for the kind of chicanery behind the Dec. 2 bankruptcy of former energy trading giant Enron Corp. and the technology-telecom stock bubble of the late 1990s, Greenspan also argued stock option grants should be linked to management performance.

While Greenspan wants the options expense to be mandatory, he seemed to suggest that regulatory agencies such as the Securities and Exchange Commission and private accounting bodies — not Congress — were best placed to fix the problems.

We would be best served in my judgment by leaving issues such as option grant expense to regulatory bodies and the private sector, he said.

The Bush administration is sympathetic to the argument that listing options as a corporate cost could stifle a form of compensation valuable to the innovative high-tech and telecom sectors.

The co