Download or read book Expensing Executive Stock Options written by Don M. Chance and published by . This book was released on 2004 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the issues and controversies over the question of whether executive stock options should be expensed and, if so, how option values should be determined. It identifies and clarifies the key questions and surveys and synthesizes the academic and trade literature. Illustrations and analyses of valuation models are provided. The paper identifies several key issues that have received little attention, such as whether the value to the executive is the cost to the company, how the effects of vesting and forfeiture should be incorporated while maintaining consistency with sound valuation theory, and whether these options should be marked to market. The paper also identifies two areas that have received almost no attention in either the practitioner or academic literature. One is the effect of taxes on the values of these options. The other is the impact, if any, of the influence an executive presumably has on the payoff of the option on the executive's willingness to hold an undiversified portfolio and what effect this factor has on the value of the option.
Download or read book Stock Options written by Barbara Wood and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Until June 2005, firms had a choice in accounting for stock option compensation. The majority of firms elected to disclose option compensation expense in the footnotes of their financial statements. However, after the accounting scandals in the early 2000s, many firms moved from disclosing the expense to recognizing the expense as a charge against earnings. This research examines the reasons that firms would voluntarily elect to adopt option recognition prior to regulatory requirement. The decision to recognize option pay is examined with respect to efficient contracting, earnings management, and information signaling. Firms that elect to expense option pay do so to reduce political costs and potential debt covenant violations. These firms also have greater earnings and lower option costs, reducing the impact of the recognition decision. From an information signaling perspective, firms with greater growth opportunities and greater insider ownership of the firm's stock use their recognition decision to reveal their firm's favorable prospects. Examination of the use of option compensation by firms that voluntarily choose to expense option pay and firms that do not reveals that expensing firms are high quality firms that use option compensation more effectively. The payoff relationship between executive option pay and operating income shows diminishing returns for non-expensing firms and a linear relation for expensing firms, suggesting that non-expensing firms may be over-granting option pay. Additionally, the incentive value of CEO option grants for expensing firms is more closely aligned with shareholder interests than for non-expensing firms. The economic determinants of executive option grants is similar for expensing and non-expensing firms. The residuals from the economic determinants model are used as an explanatory variable in a logistic regression model examining the decision to expense option compensation. Positive residuals indicate the firm grants options in excess of the level predicted by the economics determinants model. Firms over-granting option compensation would be less inclined to increase the transparency of their option program by moving the cost information into the firm's financial statements. The model shows that firms that over-grant executive stock options are less likely to voluntarily recognize option pay.
Download or read book Impact of stock option expensing on small businesses written by United States. Congress. Senate. Committee on Small Business and Entrepreneurship and published by . This book was released on 2004 with total page 362 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Expensing Executive Stock Options written by Fayez A. Elayan and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This research examines the valuation effect and the factors associated with firms' decisions to expense executive stock options, as well as determinants of market reaction to expensing announcements. The likelihood of expensing is found to be higher for firms subject to fewer agency problems and having a "share-holder friendly" corporate governance structure. These results suggest that the decision to expense is heavily influenced by the extent of discipline, monitoring, and how closely the interests of management and stockholders are aligned. The mean and median announcement-period returns are not found to be significantly different from zero. However, the post-announcement period abnormal returns are negative and statistically significant. The cross-sectional analysis provides support for the prediction that the market reaction to expensing has a differential valuation effect related to the level and structure of management compensation. Namely, companies with a higher percentage of long-term compensation (to total compensation) and a higher percentage of total compensation (to total assets) have negative, or less positive, average abnormal returns. These results are consistent with the first part of the argument advanced by the proponents of expensing options, that recognition causes reported earnings to decline and share prices to follow. The second part of their argument is that boards of directors will then be less inclined to grant excessive options is not supported. The perceived benefits (if capitalized in share price at announcement time) of the boards' action in terms of more transparency, is either absent or does not offset the negative impact of lower earnings and share prices of expensing firms.
Download or read book Oversight Hearing on Expensing Stock Options written by United States. Congress. Senate. Committee on Governmental Affairs. Subcommittee on Financial Management, the Budget, and International Security and published by . This book was released on 2004 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Stock Options Grants written by Peter R. Wheeler and published by AdvisorPress. This book was released on 2004 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stock Options + Grants: The Executive's Guide to Equity Compensation provides a comprehensive, easy reading treatment to the complex area of stock options and grants for the busy executive. From the boardroom to the mailroom, individuals with stock options or grants will benefit from the quick reading question and answer format of this book. If you have a question about your stock options or grants, you are likely to find it answered in Stock Options + Grants: The Executive's Guide to Equity Compensation.
Download or read book Executive Stock Options written by United States. Congress. Senate. Committee on Homeland Security and Governmental Affairs. Permanent Subcommittee on Investigations and published by . This book was released on 2007 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Option Expensing and Executive Compensation written by Yi Feng and published by . This book was released on 2007 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the impact of mandatory option expensing on executive compensation. Although it merely changes the way option costs are disclosed (in footnotes or expensed in income statement), mandatory option expensing may actually alter the optimal contract between firms and their CEOs. We show theoretically that CEOs' perceived personal loss from option expensing reduces (increases) the optimal level of equity-based incentives (cash compensation). Our empirical analysis of CEO compensation using ExecuComp data supports this prediction. In addition, we find that equity incentives decline more sharply in firms that provided more excessive levels of performance pay than comparable firms do. We also find evidence that the fraction of incentives derived from stock options declines as firms comply or prepare to comply with mandatory option expensing, supporting a substitution effect between restricted stock and stock options. The documented impact of option expensing is robust to alternative explanations including the impact of the Sarbanes-Oxley Act of 2002, option backdating, different measures of equity incentives, regression specifications, and estimation methods.
Download or read book The Early Adoption of Stock Option Compensation Expense written by Petro Lisowsky and published by . This book was released on 2008 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine the likelihood of firms adopting the fair value based method of accounting for stock option compensation cost in 2002 and 2003. To examine this issue, I use two matched sample methodologies: (1) a size and book-to-market matching method typically employed in empirical accounting and finance research; and (2) a Propensity Score matching method typically used in the life sciences. I create a profile of firms that elected to expense employee stock option compensation when it was not yet required by Statement on Financial Standards No. 123 (Revised): Share-Based Payment (SFAS 123(R)). I find support for the general hypothesis that increasing switching costs from disclosure to recognition lowers the likelihood for stock option expense adoption in 2002 and 2003. More specifically, the likelihood of expensing stock options decreases when the magnitude of (implied) stock option expense increases and the value of options awarded to the firm's executives increases in relation to their total compensation. I find that the likelihood of expensing stock options increases when the interest coverage ratio increases and when the number of options awarded to the firm's executives increases in relation to the number of stock options awarded to all employees. I also find weak evidence that the likelihood of expensing is highest in the healthcare industry. Although these results hold under both matched sample approaches, the Propensity Score approach helps to prevent misleading statistical inference by reducing the bias inherent in traditional size and book-to-market matched sampling.
Download or read book Expensing Employee Stock Options written by Norbert J. Michel and published by . This book was released on 2002 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Stock Options and the New Rules of Corporate Accountability written by Donald P. Delves and published by McGraw Hill Professional. This book was released on 2003-09-22 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt: "As a former CEO and independent director of several corporations, I find Don Delves' discussion of executive compensation -- including detailed and insightful reviews of the issues involving stock options -- to be exceedingly instructive. This is a book that members of compensation committees, indeed all corporate board members should read." -B. Kenneth West, Former CEO, Harris Trust and Savings Bank and member of several corporate boards. Guidelines for curbing today's stock option abuses, and making "payment for performance" the new imperative Stock options account for up to 90 percent of the average CEO's compensation--despite a falling stock market and often plunging corporate earnings. Stock Options and the New Rules of Corporate Accountability examines this hot-button issue, proposing new methodologies and techniques for better aligning stock options, executive compensation, performance rewards, and accounting, and making sense of what has become today's most controversial form of compensation. Executive compensation authority Don Delves explains how high-profile corporations like GE and Coca-Cola have opted to expense stock options and have adjusted their policies to prevent options from becoming disincentive tools, and he shows others how to follow suit. In addition, Delves gives decision makers the knowledge they need to: Increase accountability by treating stock options as expenses Balance options with other incentives Create healthier contracts between employers and employees
Download or read book The Valuation and Expensing of Executive Stock Options and Impact on the Value of the Firm written by Rasul M. Raheem and published by . This book was released on 2003 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accounting for Stock Options written by Nicole Marciano and published by . This book was released on 2004 with total page 246 pages. Available in PDF, EPUB and Kindle. Book excerpt: The task of accounting for equity compensation has never been more controversial and complex than it is today. There exists a viewpoint that one reason for current business scandals was the use of equity compensation arrangements. These arrangements gave companies the ability to issue executive stock options with no financial statement impact. In response to these issues, corporate practices are changing. Stock options are an important component of a company's executive compensation program. Stock options are a significant cost for corporations and an even larger benefit to executives. That is partly the reason why corporations fight to avoid making a charge for stock options against earnings. When a corporation gives something of value to its employees, in return for their services, it is clearly a compensation expense. Employee stock options are a legitimate expense and are considered the cost of doing business in today's economy. Using traditional accounting methodology, expenses are reported on the entity's income statement. Failure to account for stock options is a disservice to investors and a weakness of America's capital markets. Without consistent valuation rules, it is nearly impossible to compare one company's performance with another. This thesis will discuss the current reasons, methods, and effects of standardized expensing of stock options. This thesis (1) proves the role of the Financial Accounting Standards Board in passing accounting standards is being undermined by current investigations of the Securities and Exchange Commission through analysis of The Securities Exchange Acts of 1933 and 1934 and The Sarbanes-Oxley Act of 2002. (2) proves the necessity of accounting for stock options by examining Intel Corporation's financial statements and note disclosures regarding stock option expensing; (3) describes some of the valuation techniques used to value stock options and explains why these techniques are controversial; (4) predicts the impact of standardized expensing of stock options upon the economy, stockholders, and employees ; and (5) explores in detail the rationale and results of expensing stock options through presentation of comprehensive interpretation of Accounting Principles Board Opinions, Financial Accounting Standards Board Statements, and International Accounting Standards Board Exposure Draft. It is important that the public users of financial statements know the true significance of company performance indicators like earnings per share and net income. In addition, investors need to be aware of the reasons for and against an entity's expensing of stock options on the income statement in order to make informed business decisions. Most of the coverage on this topic via the media, periodicals, newspapers, books, and financial statements themselves are too technical to be used as an adequate source. The importance of this study is to organize, supplement and explain accounting for stock options in a logical manner. Hopefully, as a result, the stockholder, employee, and the business executive will be able to use this study as a source to determine the actual accounting and valuation techniques used, and their implications and ramifications.
Download or read book Confronting the Issue of Expensing Exployee Stock Options written by Mary Olson and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Complete Guide to Employee Stock Options written by Frederick D. Lipman and published by Prima Lifestyles. This book was released on 2001 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Numerous private and public companies offer stock option plans every year to motivate, retain, and reward employees. But implementing the right stock option plan can be a complex and daunting undertaking, without the proper guidance.The Complete Guide to Employee Stock Optionsunravels the mystery of creating a meaningful equity compensation plan for employees that is favorable for the business. Author and attorney Frederick D. Lipman describes in complete detail the legal, operational, and motivational aspects of developing a stock option program, whether it's for the new start-up looking to attract top talent or the venerable company looking for ways to reward its best performing employees. Readers will discover how to: * Understand the pros and cons of different option plans* Implement the right plan to meet the company's future plans* Motivate key employees with equity compensation* Minimize the risk of losing equity in a volatile market* And much moreThis book also includes useful information for employees who want to understand what their stock options mean and how to maximize their profitability. Complete wi
Download or read book Stock Option Expensing written by Fabrizio Ferri and published by . This book was released on 2011 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the 2003 and 2004 proxy seasons the Securities Exchange Commission allowed shareholders' proposals to expense employee stock options to be voted upon at the annual meeting. We analyze the determinants of shareholders' votes for a sample of 107 firms. We hypothesize and find that votes for expensing are higher in firms with perceived excessive option compensation and lower expected earnings impact from expensing. Insiders' ownership is positively associated to votes against, while most types of institutional investors tend to vote for expensing. Finally, votes for are higher in larger firms, with higher interest coverage, higher leverage and lower returns.
Download or read book The Accounting Treatment of Employee Stock Options written by United States. Congress. House. Committee on Financial Services. Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises and published by . This book was released on 2003 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt:
