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Company Executive Compensation: Stock Options

In recent months there have been many news stories in the press about executive compensation with stock options. This type of compensation occurs when an executive is granted the "option" to purchase the company's stock at a certain price sometime in the future. The theory is if the executive is effective his management skills will lead to a higher stock price. As a reward the executive can purchase the stock at the earlier, lower price and lock in an automatic gain in his shares. However, certain companies have been falsifying the actual date when the stock options are granted to their executives. Write a short paper describing the situation and the implications of the practice including any legal or ethical ramifications.

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The use of stock options as executive compensation has led to the recent epidemic of corporate fraud and abuse. The ownership of large amounts of options induced many greedy executives to do everything they could, even falsifying records to drive the stock price up so they could benefit by cashing in while the stock was artificially high. Although corporations are entitled to a tax deduction when stock options are exercised loopholes in accounting rules continue to allow them to avoid counting them in financial statements when they are issued, creating misleading financial reports.

Companies that include stock options in the compensation package of high-paid employees commonly drive up their value by altering the grant date to match the date of the stock's lowest ...

Solution Summary

The solution gives 495 words about stock option as a company's executives' compensation.