 New economy accounting: why are broad-based stock option plans so attractive?Dieter E. Hess and Erik Lüders No 00-39, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Abstract: Several studies indicate that stock option plans are becoming more and more a substantial part of compensation schemes in U.S. companies. This paper shows the tax implications and accounting rules for stock option plans. By comparison of the tax and accounting rules for different compensation schemes we show that the popularity of stock options may be mainly due to the U.S. Generally Accepted Accounting Principles (US-GAAP) which require no charge to earnings for speciffically designed stock option plans if a company opts for footnote disclosure. Thus, for these companies the stated earnings are higher than their economical situations justify. Based on a case study of 20 companies out of the S&P 500 which rely heavily on employee stock options we arrive at the conclusion that the amount of hidden compensation cost can reach economically signifficant amounts. Since this topic seems to be widely neglected it is questionable whether stock prices reflect these hidden cost. Keywords: Accounting; US-GAAP; stock option programs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:5322 Access Statistics for this paper More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC. |
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