Stock Options-Acc 499 Capstone

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

d. ASC 710-10-25-9 addresses the recognition of deferred compensation arrangements. It states: “To the extent the terms of a contract attribute all or a portion of the expected future benefits to a period of service greater than one year, the cost of those benefits shall be accrued over that period of the employee’s service in a systematic and rational manner.” The compensation costs associated with the stock options should be allocated over the three-year reporting period.

However, at issue is the calculation of compensation expense for the years subsequent to the change in exercise price and vesting period. FAS 123(R) 51 states that a modification of the terms or conditions of an equity award shall be treated as an exchange of the original award for a new award. 51 further states that in substance, the entity repurchases the original instrument by issuing a new instrument of equal or greater value, incurring additional compensation expense for any incremental value.

Executive pay – excessive pay for top executives is one problem that will not go away. It is a response to public concern about pay rises that are unrelated to effort, plus a number of high-profile cases of failed executives getting pay-offs of up to US $100 million and others having stock options backdated to give them a share of earlier capital gains. This at least tells shareholders exactly what their top executives are earning.

The stock option plans can create the appropriate incentives to either corporations or employees. For the recipients, it can be regarded to tax reduction. By avoiding the income tax payments, stock option would help the employees with high annualized income salaries by converting part of income to capital gains. Furthermore, stock options are effective way to correlate performance and compensation. In the other words, it implies that compensation would boost the individual performance as well the overall performance of the firm. For the employees in high positions, the compensation would encourage them to act in the best interest of company to foster company growths as well as increase the stock prices. Employees, talented and excellent, are the main purposes of creating incentive plans by the company. Generally, the stock option only benefits the executives with high income salaries and in the decision-making positions, where have ability to impact on the company’s profitability and growth. Therefore, in order to make the stock option plans are more favorable, the company should individualize the package based on different positions. Further, granting the privileges of early exercise or lessen the period of stock options would also motivate the employees to take the plans. These set up of

It is with this background of wide discrepancies in compensations between executives and other employees and the fact that executive receive huge compensation packages despite their performance that critics have raised the issue of equity and ethical concerns. The free market system has a culture of rewarding employees based on their ability, merit and performance but executive compensation defies this culture (Mullins, 2007). The equity issues are compounded considering that in countries such as America many workers earn in a year what there bosses earn in an evening (Mullins, 2007). Even among stock investors and anti-globalization campaigners, the issue of pay package is a shared concern with claims that executives pay is extremely high. Recent examples include Freddie Mac CEO, Richard Syron, who received $14.5 million in 2007 and where $2.2 million of this amount was a “performance bonus” (Encyclopedia of Management, 2009).

This report explores the issue of the pay that top executives make, and the reasons why they do. It also suggests improvements that can be made to make the system better. High Pay Seems Small When Compared To Company Profits Many companies pull in profits that are extremely high. When an employee of such a companies salary is compared to the amount of profit that the company earns, it starts to seem reasonable. It only makes sense that if the employee is directly responsible for the success of their company, then they deserve to get their payback. It seems ironic, but many salaries even look small once compared with a companies profits. Top Executives Are Under A Lot Of Pressure Being the CEO of a

We believe giving executive compensation with the financial support bestowed from the government during the economic crisis is unethical as they are aimed to support the companies from facing bankruptcy or from financial struggles they are currently facing. The stakeholders involved in this financial crisis were the chief executive officers of the major banks, the investors who invested into the companies, those who bought CDOs and other “garbage”, and ultimately the taxpayers whose money were used to relieve the major banks from going into bankruptcy.

There is currently a large wage gap between CEO’s of a company and the regular workers. Companies are not investing their profits in better technology or hiring new employees. This is having a profound negative effect on our economy and creating greater social inequality in our country. So far, strikes and protests by workers have had no effect on corporate compensation practices. Economic prosperity does not trickle down from the wealthy to the lower and middle classes. People need to rally and have their representative pass legislation that will cap executive salaries and increase minimum wage.

sation is only one of a number of corporate governance issues that companies now face, we need to consider how to foster greater accountability by removing impediments to the market for the transfer of corporate control. We 've made it harder for shareholders to join together and shift control of a company by supporting tender offers from outsiders-outsiders who may be able to deliver stronger performance. That, I think, has made the market less efficient than it was 20 years ago. This issue needs more study, but I believe part ofthe overall answer on executive compensation is to restore a greater liquidity in the market for corporate control. Peter Clapman: I hope the new stock-exchange requirements help change things, but I 'm not counting on it. We 're talking about a closed-door process that happens at board meetings, and I don 't think we can count on real progress until we 're able to influence the private discussions that take place behind closed doors. TIAACREF has retained, as consultants, two retired CEOs who also sit on compensation committees of major American companies, and they 've talked about the way compensation is actually discussed in the boardroom, based on their informal discussions with compensation consultants. Here 's what they told us about the process. Let 's say a board is discussing whether to award the CEO

Compensation plans are as varied as the companies that implement them. They reflect a company’s culture, financial strategy, organizational structure and goals. Compensation plans serve as the catalyst for employees to join a company and remain, which in turn enables the organization to fulfill its obligation to provide goods and services.

1. Since 1980 to 2002, the competition and the growth in markets have become tougher and as a result there is a high responsibility. The executives are earning high amount just because they are running and managing companies which are growing very rapidly. Over the years the high increase inflation is generated were the ways in which payment was granted to the people, the change towards the shares from the stock options. T Those two things were happened at the same time. From 2002, the people reacted critically towards the the ways in which these executives were paid. The governance accusations of the shareholders pressurized that these executives are giving protection to themselves and are paid excessively high (Brick et al 2006). Now the executives can be eliminated in an easier way. Companies are paying them because these executives can be replaced very easily. Basically it is the title they paid on the basis of the risks they bear and outstanding performance for the coming year. On the other hand they are paid because stakeholders wanted them to be with the international market. If the companies have to give the response to a problem, there is a counter argument to sustain the option of

As a result of the current economic crises, many companies are experiencing massive financial losses. These companies are reducing salaries and cutting peoples’ jobs while executives are maintaining high compensations. Using tax payer’s money, the US Government is assisting these financially struggling companies through the Troubled Asset Relief Program (TARP). TARP was created to assist these companies to ultimately allow them to survive and prevent massive job loss. Tax payers are concerned about executives receiving a high and unjust compensation in comparison to other non-executives whom are suffering from layoffs and compensation cuts. Executive compensation is controlled by the

Even though through 2007 and 2010 CEOs have had substantial cuts in their salaries ranging from eleven to thirty percent, due to reform in the industry the pay and or compensation packages have not decreased. Through long term and short term incentives executive aren't really feeling the losses. While US based auto workers hired before 2007 have not had a raise in almost ten years. According to a study done by THE BUREAU OF LABOR STATISTICS the average hourly earnings of product and nonsupervisory

“The global financial crisis in late 2007 and in 2008 increased public disquiet about the high level of executive remuneration” Lipton & Herzberg p 316.