That was just by chance, Mr. Chairman.

I do not want anybody to think that Iowa got a break here. [Laughter.]

Thank you, Mr. Chairman and members of this

committee. I appreciate the opportunity to be here to discuss the

practice of backdating stock...

Good morning, Chairman Grassley,

Ranking Member Baucus, and members of the Finance Committee.

Thank you for inviting me to testify on the...

I think so. I think we can prove that at

least as well as 162 would say. [Laughter.]

This is the first time that I have testified before...

Thank you. Good morning, Chairman Grassley,

Ranking Member Baucus, and members of the Finance Committee.

Thank you very much for inviting...

Mr. Chairman, I will start first, just by saying

that the general approach in this area is similar to a good bit of

the corporate fraud...

The longer the Congress waits to act in

any year on tax matters, the tougher it makes it for us. If you look

at last year with Hurricane...

I am trying to be delicate in my response.

[Laughter.]

I have not heard directly of any particular

numbers, sir, but I have heard that the issue has surfaced

and this is a concern.

My vote is with action.

I actually think that the increase in stock options,

the use of stock options, is a phenomenon largely of the 1990s, particularly

in the...

It was a combination of academic research of data

that we then followed up on. The data identified the potential for

problems and then we,...

Let me broaden the question just a little

bit from the backdating of the options. In terms of the money that

is at stake, it is not that...

No, we are not where we should be.

You are absolutely right. We need to

greatly enhance our analytical capabilities. Again, this does come

back to the funding question, because...

That is certainly an element of any

plan.

Since we have raised this, I would like

to make a pitch. It would be helpful for us to have an Assistant

Secretary for Tax Policy to finish...

The issue of stock option grants has to be looked

at——

No, certainly not. Maybe I did not understand

your question.

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That is not the implication that I certainly intend

to communicate. As part of our corporate fraud effort we look at

criminal wrongdoing,...

I do not think high pay, in itself, will

lead to illegality. I have said that I am very concerned about incentive

compensation, particularly...

I would defer to my colleague, but I

think that the stock options certainly have been a major driver as

to the component of the compensation.

Well, indeed, if I may step in. The recently enacted

executive compensation rules by the SEC are geared entirely

towards disclosure of compensation,...

I would not suggest that. If there is any

inference of that, that the government should step in, sir, that is

not where I am. I do find...

I understand that. I just hope we do not infer

that most everybody is breaking the rules. Anyway, thank you.

My apologies, sir.

Mr. Chairman, in the two cases where we brought

criminal charges, one of the two cases includes the general counsel

of the company. My own...

Well, I think I see it as being less significant, at

least in the cases we have charged, because of the small number

of people who are involved...

Again, I hope I will be able to confirm this with

my colleagues in the Division of Corporation Finance. The new

rules generally provide...

Sir, I would say that, this is a smaller

issue in terms of dollar amount compared to the other compensation

piece we are talking about today.

Backing...

Thank you very much, Mr. Chairman and members

of this committee. It is a great honor to be here. I am very, very

pleased that the committee...

Chairman Grassley, Senator Baucus, and distinguished

members of the committee, thank you very much for inviting

me to be here today to testify.

I...

Thank you, Chairman Grassley, Senator Baucus,

and distinguished members of the committee. I am delighted to be

here to speak to you today...

Mr. Chairman, I would like to thank you for inviting

me to appear before your committee today. It is a pleasure to

have this opportunity...

Thank you, Mr. Chairman. I am glad you mentioned

movie stars and baseball players, because of the people in the

stratosphere of pay, that...

There are two considerations that should guide

whatever the committee comes out with on this. One is that it

would be important to have...

Actually, I kind of like option one, which was just

getting out of 162(m) altogether, getting out of the sort of tax regulation,

if you...

Well, I always have things to add. [Laughter.] I

would just like to follow up on what Prof. Elson said, that depending

on the points that...

If I may add, I think we should care a great deal

about this, because it is an important economic issue. It is not just

symbolic. It has...

There are important things here that are a result

of Federal law, so the SEC could allow shareholders to put candidates

on the ballot, which...

I think it is generally not a tax issue. I think that

the failure of the very well-intentioned 162(m) shows how treacherous

that territory...

I agree with Nell.

I basically agree. I mean, as was pointed out,

there is, without section 162(m), the reasonableness criteria, that

really outrageous cases...

Correct.

But in the end, if they disallow the deduction, the

losers are the shareholders, and they were the whole group you

were supposed to protect...

I think that we use tax incentives for many

things. The problem that we had in the past was the difficulty of

defining when you have pay...

As I explained in my written statement and a little

bit here earlier today, executives can make very substantial

gains from tax savings...

The SEC could ask for this. In the recent reform,

which I very much applaud, at some point they were considering

adding increases in deferred...

It does. It is wrong. It is a misuse of shareholder

funds, shareholder assets. The asset was not bought for personal

use of the executive....