AFL-CIO Outlines Steps for Auditors on Stock Options Recommendations Aimed at Curbing Abuse

For Immediate Release                  Contacts: Steve Smith (202) 637-5018                                                                                 Vineeta Anand (202) 637-5182; (202) 631-9774

WASHINGTON, Aug. 27—The AFL-CIO today announced steps to help accounting firms better detect the manipulation of stock option grants and spur further reform of the audit process.  The recommendations resulted from a series of meetings this year between the labor federation and the four largest accounting firms regarding stock option abuse.

In an Aug. 23 letter to the CEOs of the “Big Four” accounting firms, AFL-CIO Secretary-Treasurer Richard Trumka recommended that auditors exercise “professional skepticism” in their review of stock option grants, and adhere to auditing rules that require them to “assess the risk of misstatements” resulting from mistakes. 

“We are especially concerned because stock option abuses appear to have been endemic at U.S. corporations, touching some of the nation’s largest companies such as UnitedHealth Group, Apple and Home Depot,” he wrote to the heads of PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young and KPMG.

“As investors, we care about the improper timing of stock option grants by corporate executives because this malfeasance threatens the retirement security of America’s working families, including union members who participate in pension and retirement plans with more than $5 trillion in assets,” Trumka said in the letter.

Backdating involves looking back for low points of the company’s stock price, and then pretending the options were granted on those favorable dates, akin to accepting bets on a horse race after its over.  Spring-loading is the practice of granting stock options just ahead of good news expected to lift the stock price, or just after the announcement of bad news.

Recent academic research indicates that as many as 2,200 companies were involved in options abuse, well beyond the 140 currently under investigation.  A University of Michigan study this year estimated the fallout from options investigations may cost shareholders hundreds of millions of dollars.  

For a copy of the investor letter please visit http://investment.aflcio.org

The AFL-CIO is the umbrella organization for America’s unions, representing 10 million workers nationwide.