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Should Stock Options Be Expensed ? ... McKee
Accounting 3010-201
November 6, 2002
For my sake, let’s begin with some basic questions:
What are stock options? A stock option is a warrant (certificates entitling the holder to acquire shares of stock at a certain price within a stated period) which gives selected employees the option to purchase common stock at a given price over an extended period of time. 1
Why do companies give employees stock options? Stock option plans are used to pay and motivate employees. ... 1
How do stock options specifically meet the objectives of an effective compensation program? Since compensation is directly related to performance of the company’s stock in the long run, employees are motivated to work hard and make the company as successful as possible. ... Expensing causes lower reported earnings, which in turn, causes lower earnings per share and, ultimately, lower stock price. The employees holding options want the stock price to be at maximum value when they exercise (cash in) those options.
The ‘pros’ of ‘expensing’ stock options
I.
Approximate Word count = 865
Approximate Pages = 3.5
(250 words per page double spaced)
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