Employers won't make changes to their stock options programs unless Congress forces them to, and business groups are rallying hard to make sure that doesn't happen.

The Enron debacle has resurrected a stock-options-accounting proposal that employers successfully beat back in the early '90s. A bill by Sens. Carl Levin (D-MI) and John McCain (R-AZ) would force companies to count stock options as an expense if they count them as a deduction for tax purposes. If approved, many companies would stop or drastically cut back stock options for employees rather than let profits take a dip.

"Many companies would find the tax and accounting regime of the Levin-McCain bill so onerous that they would discontinue offering options to all but the most senior executives," predicts William T. Archey, president and CEO of AeA, a trade group that represents high-tech companies. It was formerly called the American Electronics Association.

"Employers would have to rethink their entire compensation packages," says Kay Sandvik Schmitke, a compensation expert at WorldatWork, formerly known as the American Compensation Association. "The cost would be so astronomical."

A recent study from Bear Stearns found that profits at companies, including AOL Time Warner, Cisco, Disney, Hasbro, Morgan Stanley Dean Witter, Starbucks and Tyco International, would have dropped by at least 10 percent in 2000, if stock options had been expensed.

Stock options are most common at start-up companies and high-tech, telecommunications and financial services firms, where they are used as a recruiting and retention toolone that helps keep expenses down. Options allow employees to buy a given amount of company stock at a specified price. Workers can sell the stock at some point in the future, making a tidy sum if the share price has gone up. The National Center for Employee Ownership (NCEO), an organization that promotes employee ownership programs, estimates that as many as 10 million workers have stock options, up from 1 million a decade ago.

For now, companies will hold off changing their policies, betting that the legislation (S. 1940) is not a serious threat, says Ed Carberry, who specializes in stock option issues at NCEO. Initiatives similar to the Levin-McCain bill were nixed in the early '90s in Congress and at the Financial Accounting Standards Board (FASB) after intense lobbying from employers, especially high-tech companies. FASB, an organization that establishes standards of financial accounting and reporting, decided to encourage, not require, companies to account for options as an expense. But only a handful of corporations have followed that advice.

The Enron mess adds new momentum to the legislative effort. Levin points out that, had the law required Enron to report some $600 million in stock option tax deductions, its employees and stockholders would have learned the company's income was one-third less than it disclosed, giving them a clearer picture of the company's real bottom line.

Business groups will have a tougher time killing the proposal this time because organizations of investors and analysts will actively support it. The Council of Institutional Investors, an organization of large pension funds, opposed the accounting change in the early '90s, but will reverse its position soon. The Association for Investment Management and Research, made up of 50,000 investment practitioners, also supports charging stock options against earnings.

Arthur Levitt, former chairman of the Securities and Exchange Commission (SEC), is also weighing in, recently telling Congress that one of his greatest regrets from his SEC tenure was not getting stock options treated as an expense.

With that kind of support behind it, passage of the bill can't be ruled out. But there's a good chance other Enron-related issues, such as pension protections, will take priority, leaving the controversial stock options bill for another year.

-- By Michael J. Smith