scholarly journals Stock option plans for CEO compensation

2005 ◽  
Vol 3 (1) ◽  
pp. 88-100 ◽  
Author(s):  
María Dolores Álvarez-Pérez ◽  
Edelmira Neira Fontela

Stock options plans (SOPs) can be used as a CEO remuneration instrument. Our study examines the dimensions of SOPs, the types of SOP used by Spanish firms to reward the CEO, and the effect of different SOP types on CEOs’ behavior. The results show that traditional options “at the money” are the most used by Spanish firms. Although this SOP type is not the most appropriate from the optimum contract theory approach, it offers high potential gains to the CEO. It may therefore increase the capacity of companies to attract and retain competent executives.

2004 ◽  
Vol 18 (2) ◽  
pp. 135-156 ◽  
Author(s):  
Michael Kirschenheiter ◽  
Rohit Mathur ◽  
Jacob K. Thomas

Accounting for employee stock options is affected by whether outstanding options are viewed as equity or liabilities. The common perception is that the FASB's recommended treatment (per SFAS No. 123), which is based on the options-as-equity view, results in representative financial statements. We argue that this treatment distorts performance measures for three reasons. First, the deferred taxes associated with nonqualified options should also be included as equity, but are not. Second, since unexpected share price changes affect optionholders and equityholders differently, combining their interests provides an average earnings effect that is not representative for either group. We show that efforts to isolate the interests of common stockholders via diluted earning per share calculations (per SFAS No. 128) are inherently incapable of identifying wealth transfers between stockholders and optionholders. Finally, projections of future cash flow statements prepared under SFAS No. 95 overstate cash flows to current equityholders by the pretax value of projected option grants. We show that these distortions can be avoided simply by accounting for options as liabilities at grant and thereafter recognizing changes in option values (similar to the accounting for stock appreciation rights). Our analysis of stock option accounting leads to two, more general implications: (1) all securities other than common shares should be treated as liabilities, thereby simplifying the equity versus liability distinction, and (2) these liabilities should be recorded at fair values, thereby obviating the need to consider earnings dilution.


2000 ◽  
Vol 14 (2) ◽  
pp. 169-189 ◽  
Author(s):  
Leonard C. Soffer

One of the cornerstones of financial statement analysis is the discounted cash flow valuation. Despite the broad use of this valuation technique, and the economic importance of employee stock options to firm values, there is little guidance on how employee stock options should be incorporated in a valuation. This paper provides a comprehensive approach to doing so, including consideration of the income tax implications of option exercises, the simultaneity of equity and option valuation, and the use of the disclosures that were mandated recently by Statement of Financial Accounting Standards No. 123. The paper provides a comprehensive example using Microsoft's fiscal 1997 financial statements and employee stock option disclosure. This paper should be of interest to academics and practitioners involved in corporate valuation and financial statement analysis.


2017 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Nur Fadjrih Asyik

This study aims to test whether the management that receive compensation in the form of stock options having an positive impact on company performance. This study considers the external performance measurement by identifying Cumulative Abnormal Return (CAR). In addition, this study aims to test whether the company's capital structure affects the sensitivity level of employee stock option compensation and firm performance. Capital structure is measured with debt to equity ratio. The result indicates that the proportion of Employee Stock Option Plan (ESOP) influence company performance in accordance with the predictions. This shows that the more stock options offered to employees then came a sense of belonging which resulted in more motivated managers to improve company performance. Furthermore, the higher the market performance of companies that can be achieved, the higher the profit (gain) will be obtained by the recipient of stock options. In addition, this study also shows that the impact of stock option grants at the company's performance declined with the greater capital structure of liability. This shows that the capital structure of liabilities will lower the sensitivity level of employee stock option compensation and firm performance. The higher the company's liabilities would reduce the rights of the owner of the dividends each period in accordance with the ownership of shares held since the company must take into account the interest costs to be paid to the creditor.


2019 ◽  
Vol 20 (2) ◽  
pp. 367-379
Author(s):  
Charles Fried

Abstract In The Choice Theory of Contracts, Hanoch Dagan and Michael Heller state that by arguing “that autonomy matters centrally to contract,” Contract as Promise makes an “enduring contribution . . . but [its] specific arguments faltered because [they] missed the role of diverse contract types and because [it] grounded contractual freedom in a flawed rights-based view. . .. We can now say all rights-based arguments for contractual autonomy have failed.” The authors conclude that their proposed choice theory “approach returns analysis to the mainstream of twentieth-century liberalism – a tradition concerned with enhancing self-determination that is mostly absent in contract theory today.” Perhaps the signal flaw in Contract as Promise they sought to address was the homogenization of all contract types under a single paradigm. In this Article, I defend the promise principle as the appropriate paradigm for the regime of contract law. Along the way I defend the Kantian account of this subject, while acknowledging that state enforcement necessarily introduces elements — both normative and institutional — for which that paradigm fails adequately to account. Of particular interest and validity is Dagan and Heller’s discussion of contract types, to which the law has always and inevitably recurred. They show how this apparent constraint on contractual freedom actually enhances freedom to contract. I discuss what I have learned from their discussion: that choice like languages, is “lumpy,” so that realistically choices must be made between and framed within available types, off the rack, as it were, and not bespoke on each occasion. I do ask as well how these types come into being mutate, and can be deliberately adapted to changing circumstances.


Blood ◽  
2013 ◽  
Vol 122 (21) ◽  
pp. 3075-3075
Author(s):  
Donglin Liu ◽  
Thomas M Cardillo ◽  
David M Goldenberg ◽  
Chien-Hsing Chang

Abstract Ranpirnase (Rap) is an amphibian ribonuclease showing anti-tumor activity in clinical studies. We have previously reported that targeted delivery of Rap by chemical conjugation or recombinant fusion with antibodies specific for CD22, CD74 and Trop-2 could enhance its in vitro cytotoxicity as high as 10,000-fold in selected malignant cell lines. The DOCK-AND-LOCKTM (DNLTM) platform technology is a powerful method to construct novel agents of defined composition and retained bioactivity by site-specific conjugation of two types of modules, one containing the dimerization and docking domain (DDD) of cAMP-dependent protein kinase A (PKA), referred to as the DDD module, and the other bearing the anchoring domain (AD) of an interactive A-kinase anchoring protein (AKAP), referred to as the AD module. Among the distinctive features of DNL are the spontaneous formation of a dimer of the DDD module and the self-assembly of the DDD module with the AD module into a non-covalent complex, which is subsequently rendered covalent with disulfide bonds to enhance stability in vivo. The amino acid sequences of a pair of DDD and AD linkers useful for the DNL conjugation are termed DDD2 and AD2, respectively. To further explore the potential of Rap-based immunotoxins, we expressed a DDD2-module of Rap in E. coli and linked the resulting dimer of Rap to an AD2-module of a humanized IgG (expressed in myeloma cells) at each of the carboxyl termini of either the light chain (the CK-format) or the heavy chain (the CH3-format), thus producing a class of novel immunoRNases with quadruple Rap. To date, we have evaluated a pair of such constructs, 22* -Rap and 22-Rap, comprising four copies of Rap linked to the CK or CH3 termini of epratuzumab (humanized anti-CD22), respectively, in a panel of CD22-expressing human lymphoma/leukemia cell lines, which include Burkitt lymphoma (Daudi, Raji, Ramos), acute lymphoblastic leukemia (REH, 697, and RS4;11), and mantle cell lymphoma (Granta-519 and Jeko-1). The results of the MTS assay indicated that 22* -Rap was highly active (EC50 ≤ 1 nM) against Daudi, Ramos, Raji, REH, 697, RS4;11, and Granta-519 cells. Comparable cytotoxicity with EC50 values in the subnanomolar range also was observed for 22-Rap in Ramos, Daudi and Jeko-1 cells. In contrast, neither the individual DNL components (IgG-AD2 or Rap-DDD2), tested alone or in combination, nor E1* -Rap, the counterpart of 22* -Rap, generated by substituting epratuzumab with hRS7 IgG (humanized anti-Trop-2), showed notable cytotoxicity. In a disseminated Daudi xenograft model in which treatment with 10 or 20 µg of 22* -Rap (q4dx4) started 7 days after intravenous inoculation of the tumor cells, all 10 mice (5 in each group) survived over 126 days and were tumor-free, whereas the control groups, treated with saline, epratuzumab (25 µg, q4dx4), or the same dose-schedule of nonspecific control, E1* -Rap, succumbed within 36 days. These promising results, together with the findings that 22* -Rap at 10 nM was marginally toxic to B cells and other hematological cells in PBMCs, encourage further development of 22* -Rap or 22-Rap for therapy of CD22-expressing lymphomas and leukemias. Disclosures: Liu: IBC Pharmaceuticals, Inc.: Employment, Stock option, Stock option Other; Immunomedics, Inc.: Employment, Stock option Other. Cardillo:Immunomedics, Inc.: Employment, Stock option Other. Goldenberg:Immunomedics: Employment, stock options, stock options Patents & Royalties. Chang:IBC Pharmaceuticals, Inc.: Employment, Stock option, Stock option Other; Immunomedics, Inc: Employment, Stock option Other.


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