Download Stock Options Analyzed from Three Accounting Perspectives

Stock Options Analyzed
Spring
from Three Accounting
2003
Perspectives:
Managerial, Financial, and Tax
VOL.4 NO.3
B Y K A T R I N A M A N T Z K E , P H . D . , C PA ,
CURRENTLY,
AND
STOCK-BASED COMPENSATION IS GOOD FOR COMPANIES.
BUT THAT
MAY CHANGE SOON.
ompensatory stock options (CSOs) make
headlines daily these days even though this
approach to compensation has been around
for decades. In a debate over their relative
costs and benefits, stakeholders inside the
corporation are pitted against stakeholders outside the
corporation. To help readers better understand why
CSOs are under fire and why they are so attractive to
issuing companies, we describe how they simultaneously align goals of three—often disparate—areas of corporate accounting: managerial, financial, and tax. This
convergence contributed to the proliferation of CSOs in
the expansive economy of the 1990s. We also consider
the “dark side” of CSOs—their negative effects, real or
perceived—and the array of new solutions proposed to
account for them.
stock in his or her employer corporation at a specified
purchase price (the exercise price) for a fixed period of
time in the future. Historically, CSOs were granted only
to top-level corporate executives, but in recent years
employees at virtually all levels of the corporation have
begun receiving this form of compensation.
Stock options are generally priced at the current market value of the underlying stock at the date of their
issue. Most stock options have a vesting requirement—
a specified length of employment before the options
can be exercised. Cliff vesting refers to vesting that
occurs at a single point in time. In contrast, graded vesting occurs gradually, with portions of the options vesting at intervals over a number of years. The exercise
period is the stipulated time frame in which the
employee can convert options to stock. This period
does not commence until the employee is fully vested
in the options.
CSOs are often issued in lieu of other forms of compensation. As such, they are presumed valuable. The
initial value only grows, however, if the underlying
stock appreciates during the period from the grant date
C
STO C K O P T I O N S
AS
B . D O U G L A S C L I N T O N , P H . D . , C PA
C O M P E N S AT I O N
Corporations often use stock options to compensate
their employees. While CSOs are quite complex, the
idea behind them is simple. A compensatory stock
option provides an employee with the right to purchase
M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY
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SPRING 2003, VOL.4, NO.3
to the exercise date. Consider the following example:
Bob receives CSOs from his employer that permit him
to purchase 1,000 shares of the company’s stock subject
to certain vesting requirements. At the grant date, the
shares are trading for $4 per share. The exercise price
on Bob’s options is $4 per share. When Bob is fully
vested in the CSOs, the company’s shares are trading at
$10 per share. If he exercises his shares at this point,
Bob can purchase 1,000 shares with a market value of
$10,000 for an investment of only $4,000. Of course,
CSOs are not entirely without risk. Assume, instead,
that when Bob is fully vested the company’s shares are
trading at $2 per share. If the share price remains below
$4 during the exercise period, Bob would not exercise
his options because he would be paying more than market price for the shares.
Compensatory stock options are typically granted in
proportion to employees’ earnings, with higher earners
more likely to receive them. A survey by the U.S.
Department of Labor’s Bureau of Labor Statistics
(BLS) of more than 2,000 corporations that granted
options to their employees in 1999 found that more
than 5% of all employees in publicly held corporations
were granted CSOs.1 Executives were almost four times
more likely to receive CSOs than nonexecutives (20%
vs. 5%). Within the nonexecutive salary group, employees earning at least $75,000 were about 12 times more
likely to receive CSOs than employees earning less
than $35,000 (27% vs. 2%). On average, stock options
granted in 1999 were fully vested three years after the
grant date. This average holds true for most employees
when categorized by salary type. Yet almost 40% of
CSOs granted to executives in 1999 vested in less than
two years, while 27% of those granted to nonexecutives
earning at least $75,000 vested in only two years.
AN INSIDE VIEW
OF
have little control over the underlying corporate operations that contribute to maximization of their wealth.
For that, they depend on the effectiveness of the corporation’s managers.
Motivating employees to maximize the value of the
firm is an age-old problem for corporations. Stock-based
compensation addresses this problem by making
employees owners of their employer companies—
giving them a stake in the success of the firm. Agency
theory suggests that once employees own shares in a
corporation, they will begin to think and act more like
owners of the business because they are now principals
rather than just agents. Therefore, they will strive to
improve the long-term productivity of the company. As
productivity improves, the market sets a higher price
for the company that reflects this increase in value. As
the market price of the stock increases, stock-based
compensation becomes increasingly more valuable. In
this way, stock-based compensation strives to better
align manager behavior with owner expectations.
Employee wealth maximization efforts are often at
odds with shareholder wealth maximization goals.
When managers are compensated with salaries and
wages, they often have little incentive to improve the
corporation’s productivity by engaging in new and possibly risky ventures. Agency theory suggests that if too
much of an employee’s compensation is tied up in his
or her company’s stock, he or she may take a more conservative approach to the job—given the riskiness of
that portion of his/her compensation. As such, finding
the right balance of cash- and stock-based compensation is crucial for closely aligning employee goals with
those of outside shareholders.
As a general rule, incentive compensation plans are
more likely to be effective if the manager has considerable control or influence over the outcome of performance measurements. In the case of CSOs, we are
talking about influencing changes in stock price, which
explains why CSOs have been used more for top-level
managers. The assumption, of course, is that top-level
managers have a greater ability to influence stock price
than lower-level managers. On the other hand, companies in recent years have shown a huge increase in the
use of CSOs as incentive compensation for lower-level
managers and other employees. Thus, there probably
STO C K O P T I O N S
It is rare that a single transaction can align the goals of
managerial, financial, and tax accounting simultaneously. It appears that corporations have become well aware
of this issue, which has led to the increased use of
CSOs in recent years.
The Managerial Perspective. Investors purchase corporate stocks with the hope that the stocks will appreciate
and increase their wealth. Unfortunately, shareholders
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are other reasons for the proliferation of CSOs.
Stock-based compensation also is used to attract and
retain qualified employees. It can take many different
forms, including stock grants, employee stock ownership plans, stock appreciation rights, and stock options.
Of all the different forms of stock-based compensation,
CSOs have been the most popular in recent years
because of the rules that govern their financial accounting and tax treatments.
Financial Accounting Treatment. The financial
accounting treatment of CSOs has remained virtually
unchanged for the past three decades. In 1972, accounting standards setters decided not to require corporations
to expense stock options they issued to employees as
compensation. Twenty years later, the Financial
Accounting Standards Board (FASB) revisited the issue
because it was concerned that the old standard was outdated. In early 1993, the FASB, in an effort to make
financial statements more transparent, began floating
the idea that companies should begin to expense CSOs.
But the political furor that ensued led the FASB to drop
this proposal.
As a compromise between what the FASB originally
proposed and what opponents wanted, the Board issued
Statement of Financial Accounting Standards (SFAS)
No. 123, “Accounting for Stock-Based Compensation,”
in December 1994. This standard recommends but
doesn’t require companies to expense CSOs in calculating operating income. The alternative to expensing
requires corporations to footnote the estimated cost
associated with the CSOs granted during the year.
Valuing stock options for financial reporting purposes
is not easy. SFAS No. 123 stipulates that the valuation
process must take into account the stock price at the
grant date, the exercise price of the option, the expected life of the option, the volatility of the underlying
stock, the expected dividends on it, and the risk-free
interest rate over the expected life of the option. As
most of these variables must be forecasted, many people argued that the resulting cost estimate is a poor
approximation of the actual cost—resulting in less reliable financial statements. Nevertheless, this cost must,
at a minimum, be included in the footnotes under current standards.
Not surprisingly, most companies do not charge
M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY
CSOs to expense. A study by Pat McConnell, an
accounting and tax analyst at Bear, Stearns & Co., indicated that only two companies out of the S&P 500
expensed options in 1999.2 If the rest of the S&P 500
companies had been required to record their options as
expense, operating income for this group would have
been lower by about $23 billion, or 6%. A recent report
by Merrill Lynch & Co. estimates that S&P 500 earnings would dive by 10% for 2002 if the FASB were to
require options to be expensed.3 Although it is not clear
how investors would respond if all publicly held companies were required to expense their CSOs, these
amounts are arguably significant in comparison to how
severely the market disciplines companies when their
earnings fall short of estimates by far less than 6%.
If CSOs become “underwater,” different accounting
rules apply. Compensatory stock options become underwater when their exercise price is greater than the market price for the underlying stock. To remedy the
situation of underwater options, many companies merely re-price the options. To prevent these changes in
CSOs from going unreported, FASB Interpretation
No. 44, “Accounting for Certain Transactions Involving
Stock Compensation—an Interpretation of APB Opinion No. 25,” requires companies to expense options
that are re-priced. Many companies with underwater
options, however, merely cancel those options and grant
new options to avoid the expense.4 Replacement
options cannot be granted within six months before or
after cancellation of the options.
Last year especially, numerous corporations
announced they would begin to expense CSOs in
future financial statements. Given recent economic
events, many financial experts believe that all companies will be required to expense options eventually.
Companies announcing intentions to expense CSOs
include The Coca-Cola Co., The Washington Post Co.,
and Dole Food Company. Other companies, however,
might think twice before expensing options because of
a recent change in accounting standards. Under SFAS
No. 123, companies choosing to expense options were
required only to expense those options granted after
the adoption of this accounting method. Outstanding
options were excluded because of the problems associated with estimating their costs. Then, SFAS No. 148,
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Features of Compensatory Stock Options
NONQUALIFIED OPTIONS
QUALIFIED OPTIONS
(also known as incentive stock options)
◆ Taxable income for employee equals market value at
the time of exercise less exercise price.
◆ Require specific accounting with greater complexity.
◆ Are a tax-free treatment for employees (no income
recognizable from receiving or exercising options).
◆ Tax-deductible expense upon exercise for corporation equals employee compensation.
◆ No tax deduction is available to the corporation.
“Accounting for Stock-Based Compensation—
Transition and Disclosure: An Amendment of FASB
Statement No. 123,” issued on December 31, 2002,
amended SFAS No. 123.5
Companies granting options have been required to
estimate these costs since the original effective date of
SFAS No. 123 in 1995, but SFAS No. 148 now requires
those companies choosing to expense options to apply
the standard to all outstanding options. As discussed
above, the resulting effect on reported results and related market reaction could be staggering. Thus, it
remains to be seen whether or not the requirements of
SFAS No. 148 will deter firms from expensing options
in the financial statements. But they may not have a
choice. In March 2003, the FASB said it was embarking
on a project that would seek to improve the “accounting and disclosures of stock-based compensation,” and,
in April 2003, the Board voted unanimously that compensatory stock options do result in a cost that should
be recognized in the income statement as an expense.
The International Accounting Standards Board (IASB)
already advocates the expensing of stock-based
compensation.
Tax Treatment. The tax consequences of compensatory stock options depend on whether or not the stock
options are part of a qualified plan. Qualified stock
options (also known as incentive stock options) are governed by a qualified plan and require more complex
accounting. One of the main benefits of a qualified plan
is the tax-free treatment of CSOs for employees. While
qualified stock options are not taxable under the regular
tax system, their exercise often triggers an alternative
minimum tax (AMT) liability for the employee. For
AMT purposes, taxpayers must include in their taxable
M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY
income the difference between the market value of the
stock and the exercise price of the option when the
options are exercised. Nevertheless, because employees
do not recognize regular taxable income from receiving
or exercising qualified options, employers that grant
them do not receive tax deductions for them.
In contrast, nonqualified stock options generate taxable income for employees and, correspondingly, tax
deductions for employers. When nonqualified options
are exercised, the employee is deemed to have earned
income equal to the difference between the market value of the stock and the exercise price of the option. See
above, “Features of Compensatory Stock Options,” for
a summary of the two types of CSOs.
Recall our earlier example about Bob, who receives
CSOs from his employer that permit him to purchase
1,000 shares of the company’s stock at an exercise price
of $4 per share. If Bob exercises his options when the
stock is trading at $10 per share, Bob purchases 1,000
shares with a market value of $10,000 for an investment
of only $4,000. This transaction results in taxable compensation of $6,000 for Bob in the year the options are
exercised, subject to income as well as Social Security
taxes.
The Bureau of Labor Statistics’ survey on 1999 option
grants found that 78% of all employees granted stock
options in 1999 received nonqualified stock options, and
only 31% received qualified stock options. (The overlapping percentage, 9%, is because some employees
received both types.) The divergence is even greater
when the sample was limited to responses from corporations with more than 100 employees (85% vs. 24%).
While the BLS did not report the percentage of all
options granted by type of option—only by employee
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from employee stock options” for 2000.7
Given that companies are able to achieve favorable
treatment in all three accounting areas of managerial,
financial, and tax with nonqualified CSOs, it is easy to
see why their use by companies has grown. It is also
easy to understand why they would be preferred over
qualified CSOs. We summarize the converging goals of
CSOs in Table 1.
type—the foregoing statistics suggest that nonqualified
options are more prevalent than qualified options. This
speculation is supported by anecdotal evidence regarding the tax benefits resulting from the use of nonqualified stock options. Enron reportedly converted its 2000
tax liability from $112 million into a refund of $278 million
as a result of its deductions for stock options.6 Similarly,
Lucent Technologies reported a $1 billion “tax benefit
Table 1:
Converging Goals Achieved with Compensatory Stock Options
MANAGERIAL ACCOUNTING GOALS ACHIEVED WITH CSOs
HOW CSOs ACHIEVE MANAGERIAL ACCOUNTING GOALS
◆ Reduce costs.
◆ Compensation is deferred or, in some cases,
eliminated.
◆ Satisfy employees.
◆ Cash payment is avoided, increasing net cash inflow.
◆ Increase net cash inflow.
◆ Employees are motivated or “incentivized.”
◆ Conserve cash for new and rapidly growing
companies.
◆ The option provides potentially exorbitant compensation for employees (upon exercise), but the company
pays no cash.
◆ Attract and retain qualified employees.
◆ Align manager behavior with shareholder goals.
◆ Provide funding mechanism for retirement accounts.
FINANCIAL ACCOUNTING GOALS ACHIEVED WITH CSOs
HOW CSOs ACHIEVE FINANCIAL ACCOUNTING GOALS
◆ Increase reported profitability.
◆ SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for StockBased Compensation—Transition and Disclosure: An
Amendment of FASB Statement No. 123,” provide no
expense requirement.
◆ Increase reported assets, decrease reported liabilities.
◆ The future opportunity cost for CSOs not exercised is
kept off balance-sheet liabilities.
HOW CSOs ACHIEVE TAX ACCOUNTING GOALS
TAX ACCOUNTING GOALS ACHIEVED WITH CSOs
◆ Internal revenue code allows exercised options to be
expensed for tax purposes (nonqualified only).
◆ Reduce tax liability.
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chairman of Enron, realized more than $123 million on
options they exercised in 2000. Meanwhile, employees
without options but with actual stockholdings, eventually lost virtually everything. It is impossible for outside
shareholders to feel happy about such a scenario. Similarly, the Sprint Corporation’s board of directors fired
the firm’s top two executives when they learned that
these two men used questionable tax shelters to miti-
AN OUTSIDE PERSPECTIVE
Given the convergence of managerial, financial, and tax
accounting goals for corporations granting options, management has a large incentive to use CSOs to compensate employees. But that is only one side of the story.
Many stakeholders outside the corporation (such as current and future shareholders, creditors, and market regulators) are beginning to argue that CSOs have costs
that far outweigh their benefits.
Effects on Employees Receiving CSOs. Once employees
receive CSOs, they have a direct stake in how the market values their corporation. CSOs were designed to
motivate employees to act like shareholders and maximize the price of their firm’s shares. In theory, employees with CSOs will take a long-term view and focus on
improving the overall productivity of the firm. As productivity improves, the market price rises to properly
reflect the firm’s increased value. As a result, the employees’ CSOs become increasingly more valuable
before they are exercised. Recent events, however, suggest that what should work in theory may not work in
practice.
Most interested parties are unable to efficiently synthesize the overabundance of information that is publicly
available about a company. As a result, a firm’s financial
statements serve both as a communication of historical
results and as a crude proxy for what is expected in the
future. Knowing how the market uses this information,
managers may feel pressured to take aggressive positions
in reporting the firm’s financial information. Whether
aggressive accounting positions are taken to reflect management’s rosy view of the future or merely to prop up
stock prices in the short term, CSOs likely contribute to
this behavior. The relatively short vesting periods with
most CSOs just add to the temptations to push the
accounting envelope. A Wall Street Journal article last year
summed it up, stating: “Option-rich corporate CEOs
fixed both eyes on their share prices and pushed numbers to please Wall Street.”8
Also, it was nearly impossible to read a business periodical last year without seeing stories about top executives who succumbed to the temptations that CSOs
offer. Consider the Enron saga. Jeffrey Skilling, the former chairman and chief executive officer of Enron, realized more than $62 million, and Kenneth Lay, former
M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY
The “Dark Side” of
Compensatory Stock Options
Disclosure
Table 2:
◆ Short-term vesting discourages employees from
adopting a long-term perspective on share-price
maximization.
◆ Pressure to achieve results that boost market
value of stock in the short run tempts managers
to take aggressive accounting measures.
◆ Contingent, off-balance-sheet opportunity cost is
not disclosed.
◆ Inconsistent financial accounting treatment
among corporations impairs comparability.
◆ Exercised options dilute existing shareholders’
ownership.
◆ Reported profitability increases by avoiding
compensation, but it does so at the expense
of lowered earnings per share.
gate the tax costs related to the exercise of their
options. Events at Enron and Sprint punctuate the public’s growing perception that CSOs have a significant
and often costly dark side (see Table 2).
Effects on Companies Granting CSOs. Opponents of
CSOs contend that they “have bred a culture of irresponsible greed, showering executives with outlandish
paydays that sometimes reach into the tens of hundreds
of millions of dollars.”9 If excessive executive pay were
the only issue here, CSOs would be no different from
any other form of compensation. Instead, CSOs create
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other problems for the corporation that reach far beyond
compensation issues.
First and foremost, they dilute shareholder ownership. Recall the earlier example about Bob and his
CSOs to purchase 1,000 shares of the company’s stock.
Assume Bob’s company only has 3,000 shares outstanding, owned equally by three shareholders. Each shareholder has a one-third stake in the company prior to
Bob exercising his options. When Bob exercises those
options, the company issues him 1,000 shares, and the
three outside owners now have only a 25% stake in the
company. If this were not bad enough, many people
question whether corporate earnings can keep up with
the dilution. In order to cover Bob’s options, his company will need to issue a third more shares. In turn, earnings must rise by at least a third in order for earnings
per share (EPS) figures to remain steady. To combat the
problem of dilution, many companies introduce buyback plans to purchase their own shares in the open
market. While this may mitigate the problem of dilution for outside owners, it is a significant cash drain on
the company. Sometimes this strategy can backfire. An
extreme example of this is illustrated in the case of
Electronic Data Systems Corp. (EDS) (see “AntiDilution Strategy Backfires for EDS”). This threat can
be real for companies that are riding out an economic
downturn, as recent experience has shown.
Second, CSOs create an opportunity cost for the
company. When employees exercise their options, the
option price is often well below the fair market value of
the stock. As a result, the corporation forgoes that extra
cash between the market value and exercise price when
the employee exercises options. Back to the example of
Bob and his CSOs to purchase 1,000 shares of the company’s stock at $4 per share. If Bob exercises his options
when the stock is trading at $10 per share, he buys
$10,000 of stock for only $4,000. This transaction results
in an opportunity cost of $6,000 for the firm because we
assume a forgone opportunity for a cash infusion of
$10,000 when it only received $4,000. Translated into
incentive compensation language, we could say that the
motivational benefit of using CSOs in lieu of cash compensation had a deferred benefit to Bob and a price tag
of $6,000 for shareholders.
Finally, the current financial accounting treatment of
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Anti-Dilution Strategy Backfires
for EDS1
Strategy: In an effort to avoid the dilution of ownership
that would otherwise result from exercised compensatory
stock options, EDS constructed a combination of a forward purchase agreement and a put contract to buy back
shares at a specified price.
Result: EDS avoided issuing new shares to employees
exercising their CSOs. But as EDS’s stock price dropped
by 80%, the company was obligated to repurchase its
stock at the previously higher price. (The forward purchase agreement required EDS to buy its shares for about
$62 when the shares were trading at $17.) Contractual provisions ultimately forced the company to borrow cash of
$225 million to buy the required shares.
Accounting: The stock repurchase did not affect the
income statement because the transaction did not technically affect earnings. The borrowing, however, will impact
interest expense in the future because the company was
required to borrow the cash needed to complete the transaction. The statement of cash flows will reveal a “cash
flow from financing activities.”
Effect:The existing owners must face the increased risk
of higher corporate debt, increased interest obligations,
and a huge reduction in cash previously available to the
corporation. On the other hand, existing shareholders’
stock ownership remained undiluted because the options
were never exercised given the downward slide in stock
price. And, alas, the transaction ultimately was not needed!
1 Ken Brown, “EDS Bet on Its Stock Price and Ended Up Losing
Big,” The Wall Street Journal, September 26, 2002, p. C1.
CSOs is probably a key contributor to what many people have referred to as the market bubble of the 1990s.
By not expensing CSOs like other forms of compensation, many experts argue, companies artificially inflated
their earnings, appearing to be doing far better than
they actually were. These overstated earnings may have
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contributed to the overpricing of the stock market. Given current accounting methods, the S&P 500 stock
index was valued at about 37 times earnings near the
peak of the market bubble in 1999.
Proposed Solutions. The rush is on to compel companies to expense CSOs at the time they are granted, yet
some people would argue that the expensing of options
is neither necessary nor appropriate. This argument is
supported best by the assumption that the market properly considers the built-in impact on earnings per share.
That is, although exercised options do not dilute earnings when not expensed, they do dilute EPS. The
reported profitability must be spread over the new,
higher number of shares, causing EPS to fall. Thus, the
debate assumes that the lower EPS number appropriately incorporates the necessary information to investors
in pricing the shares.10
Unfortunately, the information provided by the effect
of dilution of EPS does not impact the corporation until
the options are exercised. Thus, some would argue that
outstanding (unexercised) options that represent future
dilution of EPS are not adequately considered by current shareholders. In light of this, other theorists recommend expensing options at the time they are granted.
This alternative treatment suffers from value-estimation
difficulties as mentioned previously. Nevertheless,
some would argue that it is better to be roughly right
than precisely wrong.
Another proposal is that the options be expensed in
the financial statements for external reporting as they
are for tax reporting at the time they are exercised. This
would provide consistent treatment between taxable
earnings and publicly reported earnings and would also
provide a solution to the problem of estimation. The
expense is clearly equal to the market price less the
exercise price on the date the options are converted to
stock. Along with this, some theorists believe that until
the options are exercised, they should be disclosed on
the balance sheet as liabilities. The FASB remains
steadfast in supporting the treatment of CSOs as equity
instruments, and, thus, disclosure as liabilities would be
inconsistent with equity treatment. As Reuven Brenner
and Donald Luskin write, however, “The language of
‘equity’ vs. ‘debt’ is misleading in a world where financial instruments have characteristics of both…”11
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ALIGNMENT
OF
G OA L S
If nothing else, compensatory stock options currently
offer a unique business transaction that allows the
simultaneous achievement of favorable outcomes for
corporations in the managerial, financial, and tax
accounting areas. Yet how to view the relative
cost/benefit tradeoffs of CSOs is a matter of perspective. Opinions are varied on appropriateness of current
treatment and proposed future treatment. Effects—
both good and bad—are readily recognizable. As always,
an individual’s perspective on specific treatment
depends on his/her viewpoint. Undoubtedly, with such
different perspectives, the compensatory stock option
debate will not be settled quickly. ■
Katrina Mantzke, Ph.D., CPA, is assistant professor of
accountancy at Northern Illinois University. She can be
reached at (815) 753-6209 or [email protected].
B. Douglas Clinton, Ph.D., CPA, is associate professor of
accountancy at Northern Illinois University. He can be
reached at (815) 753-6804 or [email protected].
1 Beth Levin Crimmel and Jeffrey L. Schildkraut, “Stock
Option Plans Surveyed by NCS,” Compensation and Working
Conditions, Spring 2001, pp. 3-21.
2 Alan Levinsohn, “The Cost of Stock Options,” Strategic
Finance, October 2000, pp. 89-90.
3 Janet Whitman, “FASB May Consider Tightening OptionAccounting ‘Transitions’,” The Wall Street Journal, August 1,
2002, p. C9.
4 For a thorough discussion, see C. Terry Grant and Conrad S.
Ciccotello, “The Stock Options Accounting Subterfuge,”
Strategic Finance, April 2002, pp. 37-41.
5 In addition to changes in the transition to expensing options,
SFAS No. 148 also requires clearer, more prominent, and more
frequent disclosures about the effects of stock-based compensation on a firm’s reported results.
6 David Johnston, “Enron Avoided Income Taxes in 4 of 5
Years,” The New York Times, January 17, 2002, p. A1.
7 Tracy Byrnes, “Stock-Option Accounting Hides in the Shadows of the Financials,” The Wall Street Journal, Online Edition,
March 21, 2002.
8 Neil Barsky, “The Market Game,” The Wall Street Journal,
May 8, 2002, p. A18.
9 Greg Hitt and Jacob M. Schlesinger, “Stock Options Come
Under Fire in the Wake of Enron’s Collapse,” The Wall Street
Journal, March 26, 2002, p. A1, col. 6.
10 Harvey Golub, “The Real Value of Options,” The Wall Street
Journal, August 8, 2002, p. A12.
11 Reuven Brenner and Donald Luskin, “Another Option on
Options,” The Wall Street Journal, September 3, 2002, p. A20.
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