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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 24 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 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 25 SPRING 2003, VOL. 4, NO. 3 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, 26 SPRING 2003, VOL. 4, NO. 3 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 27 SPRING 2003, VOL. 4, NO. 3 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. 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 28 SPRING 2003, VOL. 4, NO. 3 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 29 SPRING 2003, VOL. 4, NO. 3 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 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 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 30 SPRING 2003, VOL. 4, NO. 3 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 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 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. 31 SPRING 2003, VOL. 4, NO. 3