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Stock Options (stock + option)
Kinds of Stock Options Terms modified by Stock Options Selected AbstractsDouble-Blind, Randomized, Placebo-Controlled, Dose-Response Study of the Safety and Efficacy of Botulinum Toxin Type A in Subjects with Crow's FeetDERMATOLOGIC SURGERY, Issue 3 2005Nicholas J. Lowe MD Background Published evidence suggests that botulinum toxin type A (BTX-A) is an effective treatment for crow's feet. However, few dose-ranging studies have been performed. Objectives To assess the safety and efficacy of a single treatment with one of four doses of BTX-A (Botox/Vistabel, Allergan Inc) compared with placebo for the improvement of crow's feet. Methods Subjects received a single bilateral treatment of 18, 12, 6, or 3 U of BTX-A or placebo injected into the lateral aspect of the orbicularis oculi muscle (parallel-group, double,blind design). Investigators and subjects rated crow's feet severity at maximum smile on day 7 and at 30-day intervals from days 30 to 180. Results As observed by both investigators and subjects, all doses of BTX-A resulted in improvements in crow's feet severity when compared with placebo. A dose-dependent treatment effect for efficacy was observed, with higher doses having an increased magnitude and duration of effect. However, a clear differentiation between the 18 U and 12 U doses was not apparent. Few adverse events were reported, with no statistically significant differences between BTX-A and placebo in the incidence of subjects experiencing adverse events. Conclusion BTX-A is safe and effective in decreasing the severity of crow's feet, with 12 U per side suggested as the most appropriate dose. THIS STUDY WAS FUNDED BY ALLERGAN, WHICH WAS ALSO INVOLVED IN THE DESIGN AND CONDUCT OF THE STUDY; COLLECTION, MANAGEMENT, ANALYSIS, AND INTERPRETATION OF THE DATA; AND PREPARATION, REVIEW, AND APPROVAL OF THE MANUSCRIPT. DRS. LOWE AND FRACZEK ARE PAID CONSULTANTS FOR ALLERGAN, DRS. KUMAR AND EADIE ARE EMPLOYEES OF ALLERGAN, AND DRS. LOWE AND KUMAR HOLD STOCK OPTIONS. [source] TRANSFERABLE STOCK OPTIONS (TSOS) AND THE COMING REVOLUTION IN EQUITY-BASED PAYJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2004Brian J. Hall The dominant form of equity pay in the U.S. will change dramatically when accounting rules are changed (most likely in 2005) to require companies to charge the cost of their stock option plans on their income statements. Many companies are already switching from stock options to other forms of equity pay, especially restricted stock. The most notable switcher was Microsoft, the world's largest user of stock option pay. In July 2003, partnering with J.P. Morgan, Microsoft created a onetime transferable stock option (TSO) program that allowed holders of underwater Microsoft options to sell their options to J.P. Morgan in return for restricted shares. But the most important consequence of this transaction may not be a widespread shift by corporate America to restricted shares, but rather the creation of a more costeffective kind of stock option. By clearing the potentially messy hurdles involving taxes, accounting, SEC rules, and "transaction mechanics," Microsoft has opened the door for TSOs to be considered as an ongoing equitypay instrument, perhaps replacing standard stock options (which are not transferable). TSOs share the key advantages of restricted stock in terms of providing robust retention and ownership incentives and higher valuecost efficiency, while maintaining the key "leverage" advantage of options. In so doing, they create significant upside (and downside) while largely avoiding the "pay for pulse" problem of restricted stock. They also introduce the discipline of competitive pricing by third-party bidders. The bid prices of investment banks create nearly all of the information required for accurate estimates of option cost, which should foster greater board accountability and improved corporate governance. [source] IMPACT OF DIVIDEND-PROTECTED EMPLOYEE STOCK OPTIONS ON PAYOUT POLICIES: EVIDENCE FROM TAIWANPACIFIC ECONOMIC REVIEW, Issue 4 2008Ming-Cheng Wu Abstract. This study used a sample of 1035 Taiwanese firms to examine the impact of dividend protected employee stock options on stock repurchase and cash dividend policies from 2000 to 2005. This study finds a positive relationship between cash dividends and executive options, implying that executives holding stock options might prefer to distribute cash dividends to boost the stock price. This result, unlike in earlier studies, arises from the dividend protected characteristic of Taiwanese employee stock options. Finally, free cash flow, firm profitability, level of debt, investment opportunities and firm size are found to considerably influence payout decisions. [source] OUT-OF-THE-MONEY: THE IMPACT OF UNDERWATER STOCK OPTIONS ON EXECUTIVE JOB SEARCHPERSONNEL PSYCHOLOGY, Issue 1 2005BENJAMIN DUNFORD The need for future leadership in organizations is widely recognized, and often addressed through leadership development, succession planning, and building a top talent pipeline among existing employees. Equally important is retaining talented executives. Executive retention has become a concern for organizations as plunging stock prices have led to vastly devalued stock options, perhaps causing executives to look elsewhere for more lucrative stock option portfolios. Yet, there has been little research on the relationship between stock option value and executive retention. In a cross-company, cross-industry sample of 610 U.S. executives, we explored the relationship between underwater stock options and job search. We found a positive association between the percentage of underwater stock options in executives' portfolios and job search. This relationship was moderated as predicted, by executives' perceptions of alternative employment and money inadequacy beliefs. [source] Stock Price Reactions to the Repricing of Employee Stock Options,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2005Barbara M. Grein Abstract We study whether the repricing of employee stock options is in the best interests of common shareholders by examining the excess stock returns associated with timely, noncontamin-ated repricing announcements made by Canadian firms. On the basis of three theories of why firms reprice, we develop competing predictions about the mean announcement-date excess stock return and the cross-sectional relations among excess stock returns, the estimated probability of repricing, and proxies for predictions from each theory. For a sample of 72 noncontaminated repricing announcements made by Canadian firms between November 1994 and July 2001, we find a reliably positive three-day announcement-date mean excess return of 4.9 percent. The results of our cross-sectional analyses suggest that the market responds favorably to repricings because they assist in retaining key employees even though, at the margin, they enable managers to extract rents from shareholders. We do not find sufficient statistically significant evidence to reliably conclude that repricings are done to realign employee incentives. [source] Cancellation of Executive Stock Options: Tax and Accounting Income Considerations,CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2003Amin Mawani Abstract Canadian firms face a trade-off between reporting higher accounting income and paying lower taxes that arises from their ability to cancel in-the-money executive stock options and making a substitute cash payment to the executive instead of issuing shares. Firms' trade-off hypotheses are operationalized in a multilateral framework and empirically tested using insider-trading data. The multilateral approach is designed to control for the incentive effects of alternative compensation schemes and to determine the cancellation payment that keeps the executive indifferent between receiving cash or shares. The results show that firms consider both taxes and financial reporting costs in determining their option cancellation behavior. [source] Executive Stock Options: To Expense or Not?FINANCIAL MANAGEMENT, Issue 1 2006Sanjay Deshmukh In analyzing the decision to expense stock options, we find a greater likelihood of options expensing for firms with greater transparency and a closer alignment of interests between managers and shareholders. These results provide indirect evidence that expensing is more likely in firms that practice good corporate governance. We show that firms are less likely to expense when option usage is higher and that this negative relation is stronger for firms that are smaller, have high growth, and are less profitable. We also find that the announcement period returns are not significantly different from zero. [source] Optimal Incentive Contracts for Loss-Averse Managers: Stock Options versus Restricted Stock GrantsFINANCIAL REVIEW, Issue 4 2006Anna Dodonova G39; M52 Abstract This paper provides an explanation for the widespread use of stock option grants in executive compensation. It shows that the optimal incentive contract for loss-averse managers must contain a substantial portion of stock options even when it should consist exclusively of stock grants for "classical" risk-averse managers. The paper also provides an explanation for the drastic increase in the risk-adjusted level of CEO compensations over the past two decades and argues that more option-based compensation should be used in firms with higher cash flow volatility and in industries with a higher degree of heterogeneity among firms. [source] Simulation of the Impact of the Recognition of Stock Options on the Earnings: The case of Canadian Companies,ACCOUNTING PERSPECTIVES, Issue 1 2005SILVA BODJOVA ABSTRACT One of the most controversial accounting issues pertains to stock compensation. In Canada, the Canadian Institute of Chartered Accountants (CICA) approved section 3870, Stock-based Compensation and Other Stock-Based Payments, on November 13, 2001, to take effect in January 2002. Section 3870 forces companies to "take a look at the real economic cost of most of the stock-based compensation mechanisms" (AcSB Bulletin, October 2001, 1). The adoption of section 3870 was aimed at harmonizing Canadian accounting practice with U.S. standards. The new standard, which was initially based on two American accounting standards - APB Opinion No. 25 and SFAS No. 123 - gave companies the choice of using either the fair value method or the pro forma disclosure of net income and adjusted earnings per share to account for stock-based compensation. The Accounting Standards Board (AcSB) nevertheless recommended that Canadian companies use the fair value method, which consists in estimating and recognizing the value of the stock options at the grant date. [source] The Role of Executive Stock Options in On-Market Share Buybacks,INTERNATIONAL REVIEW OF FINANCE, Issue 3 2010ASJEET S. LAMBA ABSTRACT The increasing use of on-market buyback programs in Australia may not be fully explained by the typical motivations of information signaling and free cash flows offered by previous researchers. For some firms at least, management may believe the shares are overvalued. It is in this context that we examine whether managers of firms with high levels of executive stock options have an incentive to initiate buyback programs. It has been argued that managers may be motivated to undertake on-market buyback programs in order to neutralize the dilution of earnings per share caused by their stock options, rather than for signaling purposes. Our findings are consistent with this argument because we find that the higher the proportion of executive stock options outstanding the more likely it is for firms to undertake larger on-market buyback programs. Overall our results indicate that the existence of executive stock options influences managers' decision to implement on-market buyback programs but that it is not the only factor that managers take into consideration. [source] New Rules for the Treatment of Stock Options: Caveats for ManagementJOURNAL OF CORPORATE ACCOUNTING & FINANCE, Issue 1 2001Jeanne Sylvestre Stock options have become an increasingly popular part of compensation packages. But some of the latest rules for handling them are complex. The authors explain how to navigate these treacherous waters, and list a variety of caveats you must heed. © 2001 John Wiley & Sons, Inc. [source] Accounting for Employee Stock Options: What Can We Learn from the Market's Perceptions?JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 2 2010Emanuel Bagna The scope of this is paper is to provide new empirical evidence on the value relevance of employee stock options (ESOs) in Europe. We show, empirically, that the market participants when pricing a firm's equity place approximately the same valuation weights on the ESO -deferred compensation expense (the so called "ESO asset") and the compensation option liability (the so called "ESO liability"). Our empirical findings support the theoretical work of Ohlson and Penman who suggest that the deferred compensation expense be treated as a contra-liability. The second contribution of our work rests on the nature of the ESO expense. We show that the distinction between persistent and non-persistent ESO expenses is of critical importance for the market participants. Accordingly, an improved accounting disclosure should assist the investors in assessing the long-term goals of the ESO plans at the firm level. [source] Stock Options and the Corporate Demand for InsuranceJOURNAL OF RISK AND INSURANCE, Issue 2 2006Li-Ming Han This article shows that a corporate manager compensated in stock options makes corporate decisions to maximize stock option value. Overinvestment is a consequence if risk increases with investment. Facing the choice of hedging corporate risk with forward contracts on a stock market index fund and insuring pure risks the manager will choose the latter. Hedging with forwards reduces weight in both tails of corporate payoff distribution and thus reduces option value. Insuring pure risks reduces the weight in the left tail where the options are out-of-the-money and increases the weight in the right tail where the options are in-the-money; the effect is an increase in the option value. Insurance reduces the overinvestment problem but no level of insurance coverage can reduce investment to that which maximizes the shareholder value. [source] Clearly Irrational Financial Market Behavior: Evidence from the Early Exercise of Exchange Traded Stock OptionsTHE JOURNAL OF FINANCE, Issue 1 2003Allen M. Poteshman This paper analyzes the early exercise of exchange-traded options by different classes of investors over the 1996 to 1999 period. A large number of exercises are identified as clearly irrational without invoking any model of market equilibrium. Customers of discount brokers and customers of full-service brokers both engage in a significant number of irrational exercises while traders at large investment houses exhibit no irrational early exercise behavior. Rational and irrational exercise is triggered for discount and full-service customers by the underlying stock price attaining its highest level over the past year and by high returns on the underlying stock. [source] Accounting for Executive Stock Options: A Case Study in Avoiding Tough DecisionsAUSTRALIAN ACCOUNTING REVIEW, Issue 26 2002Jeff Coulton We review the development of accounting requirements for executive stock options (ESOs) and find that the standard-setting process has been susceptible to pressure groups including the corporate sector, politicians and even the accounting profession itself. The failure of Australian and overseas accounting regulators to take tough decisions may have created a systematic bias towards the use of ESOs which can result in grossly inefficient compensation structures motivated by a desire to maximise reported profits rather than to create optimal managerial incentives. We conclude that most of the arguments against recognition of stock option expense can be dismissed as blatant self-interest at worst, or remarkably muddled thinking at best. [source] New Rules for the Treatment of Stock Options: Caveats for ManagementJOURNAL OF CORPORATE ACCOUNTING & FINANCE, Issue 1 2001Jeanne Sylvestre Stock options have become an increasingly popular part of compensation packages. But some of the latest rules for handling them are complex. The authors explain how to navigate these treacherous waters, and list a variety of caveats you must heed. © 2001 John Wiley & Sons, Inc. [source] Ethical control and cultural change (in cultural dreams begin organizational responsibilities)JOURNAL OF PUBLIC AFFAIRS, Issue 3 2010Slawomir Magala Ethical control is based on transparent access to the accounts of responsible behaviour on the part of individual and organizational actors. It is usually linked to the idea of a checkpoint: where celibate rules, no sexual interaction can be allowed. However, organizing and managing climates in professional bureaucracies have always led towards the empowerment of the operatives (regional bishops and local parish priests in the case of the Catholic Church). History of the church is repeated by corporate bureaucracies in the wake of the globalized and individualized multimedia communications, ushering in the era of hyper-connectivity and traceability of individual behaviour. From industrial camera records at the parking lot or building entrance to the Google analysis of surfing behaviour, all of us generate public confessions and see more private acts subjected to the public ethical clearings. Universities, like hospitals, airlines and armies before them, had to enter the game of cognitive and institutional conscience game with codes of conduct and other digital tablets with 10 or more commandments. What about the gravest capital and collective sins of our societies translated daily into millions of unethical behaviours? Inequalities and injustices usually circle around gender, race, poverty and nature. Charity begins in heart and mind, but requires cultural change and a humanist coefficient in educational and socializing interactions. Stock options of arts and humanities as the prime suppliers of applied ethical procedures in educational settings should/will go up. Copyright © 2010 John Wiley & Sons, Ltd. [source] Employee Stock Option Fair-Value Estimates: Do Managerial Discretion and Incentives Explain Accuracy?,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2006Leslie Hodder Abstract We examine the determinants of managers' use of discretion over employee stock option (ESO) valuation-model inputs that determine ESO fair values. We also explore the consequences of such discretion. Firms exercise considerable discretion over all model inputs, and this discretion results in material differences in ESO fair-value estimates. Contrary to conventional wisdom, we find that a large proportion of firms exercise value-increasing discretion. Importantly, we find that using discretion improves predictive accuracy for about half of our sample firms. Moreover, we find that both opportunistic and informational managerial incentives together explain the accuracy of firms' ESO fair-value estimates. Partitioning on the direction of discretion improves our understanding of managerial incentives. Our analysis confirms that financial statement readers can use mandated contextual disclosures to construct powerful ex ante predictions of ex post accuracy. [source] TRANSFERABLE STOCK OPTIONS (TSOS) AND THE COMING REVOLUTION IN EQUITY-BASED PAYJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2004Brian J. Hall The dominant form of equity pay in the U.S. will change dramatically when accounting rules are changed (most likely in 2005) to require companies to charge the cost of their stock option plans on their income statements. Many companies are already switching from stock options to other forms of equity pay, especially restricted stock. The most notable switcher was Microsoft, the world's largest user of stock option pay. In July 2003, partnering with J.P. Morgan, Microsoft created a onetime transferable stock option (TSO) program that allowed holders of underwater Microsoft options to sell their options to J.P. Morgan in return for restricted shares. But the most important consequence of this transaction may not be a widespread shift by corporate America to restricted shares, but rather the creation of a more costeffective kind of stock option. By clearing the potentially messy hurdles involving taxes, accounting, SEC rules, and "transaction mechanics," Microsoft has opened the door for TSOs to be considered as an ongoing equitypay instrument, perhaps replacing standard stock options (which are not transferable). TSOs share the key advantages of restricted stock in terms of providing robust retention and ownership incentives and higher valuecost efficiency, while maintaining the key "leverage" advantage of options. In so doing, they create significant upside (and downside) while largely avoiding the "pay for pulse" problem of restricted stock. They also introduce the discipline of competitive pricing by third-party bidders. The bid prices of investment banks create nearly all of the information required for accurate estimates of option cost, which should foster greater board accountability and improved corporate governance. [source] Accounting Choices and Director Interlocks: A Social Network Approach to the Voluntary Expensing of Stock Option GrantsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2008Eugene Kang Abstract:, We adopt a social network perspective of accounting choices and argue that voluntary expensing of stock option grants by firms may be driven by social influence and learning within a network of director interlocks. We find that firms are more likely to expense stock option grants voluntarily when they have inside director interlocks with (1) other firms that do likewise, and (2) institutional investors of firms accused of financial reporting fraud. This study contributes to extant research by highlighting that a social network approach complements a cost-and-benefit approach (or an economic perspective) when examining the accounting practices of firms. [source] Managing Stock Option Expense: The Manipulation of Option-Pricing Model Assumptions,CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2006Derek Johnston Abstract This paper examines whether firms that voluntarily recognize stock option expense in their financial statements manage that expense downward more than firms that do not recognize the expense by adjusting option-pricing model assumptions. To examine this issue, I collect option-pricing model assumptions from fiscal year 2002 for both a sample of firms that voluntarily recognize stock option expense ("recognizing firms") and a sample of control firms that do not ("disclosing firms"). The empirical results suggest that recognizing firms manage the recognized stock-based compensation expense reported in their financial statements downward more than do firms that only disclose the expense. Additional analyses reveal that recognizing firms assume a lower level of volatility than disclosing firms in the option-pricing model calculations; however, I find no evidence that recognizing firms manage the dividend yield and risk-free interest rate assumptions more than disclosing firms. The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards No. 123(R), which requires the expensing of the fair value of stock options, so these results may be of interest to capital-market participants and the FASB as they assess the reliability of stock option expense as determined by option-pricing models. [source] Stock Price Reactions to the Repricing of Employee Stock Options,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2005Barbara M. Grein Abstract We study whether the repricing of employee stock options is in the best interests of common shareholders by examining the excess stock returns associated with timely, noncontamin-ated repricing announcements made by Canadian firms. On the basis of three theories of why firms reprice, we develop competing predictions about the mean announcement-date excess stock return and the cross-sectional relations among excess stock returns, the estimated probability of repricing, and proxies for predictions from each theory. For a sample of 72 noncontaminated repricing announcements made by Canadian firms between November 1994 and July 2001, we find a reliably positive three-day announcement-date mean excess return of 4.9 percent. The results of our cross-sectional analyses suggest that the market responds favorably to repricings because they assist in retaining key employees even though, at the margin, they enable managers to extract rents from shareholders. We do not find sufficient statistically significant evidence to reliably conclude that repricings are done to realign employee incentives. [source] Cancellation of Executive Stock Options: Tax and Accounting Income Considerations,CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2003Amin Mawani Abstract Canadian firms face a trade-off between reporting higher accounting income and paying lower taxes that arises from their ability to cancel in-the-money executive stock options and making a substitute cash payment to the executive instead of issuing shares. Firms' trade-off hypotheses are operationalized in a multilateral framework and empirically tested using insider-trading data. The multilateral approach is designed to control for the incentive effects of alternative compensation schemes and to determine the cancellation payment that keeps the executive indifferent between receiving cash or shares. The results show that firms consider both taxes and financial reporting costs in determining their option cancellation behavior. [source] Options and earnings announcements: an empirical study of volatility, trading volume, open interest and liquidityEUROPEAN FINANCIAL MANAGEMENT, Issue 2 2000Monique, W.M. Donders In this paper we study the impact of earnings announcements on implied volatility, trading volume, open interest and spreads in the stock options market. We find that implied volatility increases before announcement days and drops afterwards. Also option trading volume is higher around announcement days. During the days before the announcement open interest tends to increase, while it returns to regular levels afterwards. Changes in the quoted spread largely respond to higher trading volume and changes in implied volatility. The effective spread increases on the event day and on the first two days following the earnings announcement. [source] Are Debt and Incentive Compensation Substitutes in Controlling the Free Cash Flow Agency Problem?FINANCIAL MANAGEMENT, Issue 3 2009Yilei Zhang This paper investigates the governance implications of a firm's capital structure and managerial incentive compensation in controlling the free cash flow agency problem. The results suggest: debt and executive stock options act as substitutes in attenuating a firm's free cash flow problem; failure to incorporate the substitutability and endogeneity leads to underestimates of the magnitude and economic implication of the disciplinary role of both mechanisms; firm characteristics differ across the prevalence of debt usage versus option usage, suggesting the heterogeneity in the costs and benefits of the monitoring devices; and all the above effects are more pronounced in firms that tend to have more severe agency problem. [source] Executive Stock Options: To Expense or Not?FINANCIAL MANAGEMENT, Issue 1 2006Sanjay Deshmukh In analyzing the decision to expense stock options, we find a greater likelihood of options expensing for firms with greater transparency and a closer alignment of interests between managers and shareholders. These results provide indirect evidence that expensing is more likely in firms that practice good corporate governance. We show that firms are less likely to expense when option usage is higher and that this negative relation is stronger for firms that are smaller, have high growth, and are less profitable. We also find that the announcement period returns are not significantly different from zero. [source] Optimal Incentive Contracts for Loss-Averse Managers: Stock Options versus Restricted Stock GrantsFINANCIAL REVIEW, Issue 4 2006Anna Dodonova G39; M52 Abstract This paper provides an explanation for the widespread use of stock option grants in executive compensation. It shows that the optimal incentive contract for loss-averse managers must contain a substantial portion of stock options even when it should consist exclusively of stock grants for "classical" risk-averse managers. The paper also provides an explanation for the drastic increase in the risk-adjusted level of CEO compensations over the past two decades and argues that more option-based compensation should be used in firms with higher cash flow volatility and in industries with a higher degree of heterogeneity among firms. [source] The Subjective Valuation of Indexed Stock Options and Their Incentive EffectsFINANCIAL REVIEW, Issue 2 2006A. Louis Calvet G13; G12; J33; J32 Abstract We analyze the potential role of indexed stock options in future pay-for-performance executive compensation contracts. We present a unified framework for index-linked stock options, discuss their incentive effects, argue that indexation schemes based on the capital-asset pricing model (CAPM) are the most suitable for executive compensation, and derive a subjective pricing model for the class of CAPM-based indexed stock options. Contrary to earlier work, executives would not be motivated to take on investment projects with high idiosyncratic risk once their lack of wealth diversification and degree of risk aversion are factored into the analysis. [source] Informed Trading around Merger Announcements: An Empirical Test Using Transaction Volume and Open Interest in Options MarketFINANCIAL REVIEW, Issue 2 2001Narayanan Jayaraman G14/G34 Abstract This paper provides empirical evidence on the level of trading activity in the stock options market prior to the announcement of a merger or an acquisition. Our analysis shows that there is a significant increase in the trading activity of call and put options for companies involved in a takeover prior to the rumor of an acquisition or merger. This result is robust to both the volume of option contracts traded and the open interest. The increased trading suggests that there is a significant level of informed trading in the options market prior to the announcement of a corporate event. In addition, abnormal trading activity in the options market appears to lead abnormal trading volume in the equity market. This finding supports the hypothesis that the options market plays an important role in price discovery. [source] Valuing executive stock options: performance hurdles, early exercise and stochastic volatilityACCOUNTING & FINANCE, Issue 3 2008Philip Brown G13 Abstract Accounting standards require companies to assess the fair value of any stock options granted to executives and employees. We develop a model for accurately valuing executive and employee stock options, focusing on performance hurdles, early exercise and uncertain volatility. We apply the model in two case studies and show that properly computed fair values can be significantly lower than traditional Black,Scholes values. We then explore the implications for pay-for-performance sensitivity and the design of effective share-based incentive schemes. We find that performance hurdles can require a much greater fraction of total compensation to be a fixed salary, if pre-existing incentive levels are to be maintained. [source] | ||||||||||||||||||||||||||||||||||