The Economic and Legal Consequences of Requiring the Expensing of Employee Stock Options Without Specifying the Valuation Method

Topics:
Stock Options
Tags:
Benefits,
Employee Stock Option,
Human Resources,
Stock Options,
Stock Options & Grants,
Valuation
Source:
American Enterprise Institute

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Overview: Since 1995, most companies have chosen to use the intrinsic value method for establishing the fair value of their employee stock options, and have used the Black-Scholes options-pricing model for making the required pro forma disclosure in the footnotes to their financial reports. This article discusses that the absence of any satisfactory method for estimating the value of employee stock options, when combined with a requirement that this uncertain and unascertainable value be included in computing EPS, appears to be inconsistent with the principles and objectives of accounting itself and could create considerable legal risks for companies.

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Format: PDF | Size: 149KB | Date: Feb 2003 | Pages: 19

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