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Employee stock options (ESO) is a label that refers to compensation contracts between an employer and an employee that carries some characteristics of financial options. Employee stock options are commonly viewed as an internal agreement providing the possibility to participate in the
share capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capita ...
of a company, granted by the company to an
employee Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any ot ...
as part of the employee's remuneration package. Regulators and economists have since specified that ESOs are compensation contracts. These nonstandard contracts exist between employee and employer, whereby the employer has the liability of delivering a certain number of shares of the employer stock, when and if the employee stock options are exercised by the employee. The contract length varies, and often carries terms that may change depending on the employer and the current employment status of the employee. In the United States, the terms are detailed within an employer's "Stock Option Agreement for Incentive Equity Plan". Essentially, this is an agreement which grants the employee eligibility to purchase a limited amount of stock at a predetermined price. The resulting shares that are granted are typically restricted stock. There is no obligation for the employee to exercise the option, in which case the option will lapse. AICPA's Financial Reporting Alert describes these contracts as amounting to a "short" position in the employer's equity, unless the contract is tied to some other attribute of the employer's balance sheet. To the extent the employer's position can be modeled as a type of option, it is most often modeled as a "short position in a call". From the employee's point of view, the compensation contract provides a conditional right to buy the equity of the employer and when modeled as an option, the employee's perspective is that of a "long position in a call option".


Objectives

Many companies use employee stock options plans to retain, reward, and attract employees, the objective being to give employees an incentive to behave in ways that will boost the company's stock price. The employee could exercise the option, pay the exercise price and would be issued with ordinary shares in the company. As a result, the employee would experience a direct financial benefit of the difference between the market and the exercise prices. Stock options are also used as golden handcuffs if their value has increased drastically. An employee leaving the company would also effectively be leaving behind a large amount of potential cash, subject to restrictions as defined by the company. These restrictions, such as
vesting In law, vesting is the point in time when the rights and interests arising from legal ownership of a property is acquired by some person. Vesting creates an immediately secured right of present or future deployment. One has a vested right to an ...
and non-transferring, attempt to align the holder's interest with those of the business
shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal owne ...
s. Another substantial reason that companies issue employee stock options as compensation is to preserve and generate cash flow. The cash flow comes when the company issues new shares and receives the exercise price and receives a tax deduction equal to the "intrinsic value" of the ESOs when exercised. Employee stock options are offered differently based on position and role at the company, as determined by the company. Management typically receives the most as part of their
executive compensation Executive compensation is composed of both the financial compensation (executive pay) and other non-financial benefits received by an executive from their employing firm in return for their service. It is typically a mixture of fixed salary, variab ...
package. ESOs may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation. Alternatively, employee-type stock options can be offered to non-employees: suppliers, consultants, lawyers and promoters for services rendered.


Features


Overview

Over the course of employment, a company generally issues employee stock options to an employee which can be exercised at a particular price set on the grant day, generally a public company's current stock price or a private company's most recent valuation, such as an independent 409A valuation commonly used within the United States. Depending on the vesting schedule and the maturity of the options, the employee may elect to exercise the options at some point, obligating the company to sell the employee its stock shares at whatever stock price was used as the exercise price. At that point, the employee may either sell public stock shares, attempt to find a buyer for private stock shares (either an individual, specialized company, or
secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The initial sale of the ...
), or hold on to it in the hope of further price appreciation.


Contract differences

Employee stock options may have some of the following differences from standardized, exchange-traded options: *Exercise price: The exercise price is non-standardized and is usually the current price of the company stock at the time of issue. Alternatively, a formula may be used, such as sampling the lowest closing price over a 30-day window on either side of the grant date. On the other hand, choosing an exercise at grant date equal to the average price for the next sixty days after the grant would eliminate the chance of back dating and spring loading. Often, an employee may have ESOs exercisable at different times and different exercise prices. *Quantity: Standardized stock options typically have 100 shares per contract. ESOs usually have some non-standardized amount. *
Vesting In law, vesting is the point in time when the rights and interests arising from legal ownership of a property is acquired by some person. Vesting creates an immediately secured right of present or future deployment. One has a vested right to an ...
: Initially if X number of shares are granted to employee, then all X may not be in his account. **Some or all of the options may require that the employee continue to be employed by the company for a specified term of years before "
vesting In law, vesting is the point in time when the rights and interests arising from legal ownership of a property is acquired by some person. Vesting creates an immediately secured right of present or future deployment. One has a vested right to an ...
", i.e. selling or transferring the stock or options. Vesting may be granted all at once ("cliff vesting") or over a period time ("graded vesting"), in which case it may be "uniform" (e.g. 20% of the options vest each year for 5 years) or "non-uniform" (e.g. 20%, 30% and 50% of the options vest each year for the next three years). **Some or all of the options may require a certain event to occur, such as an initial public offering of the stock, or a change of control of the company. **The schedule may change pending the employee or the company having met certain performance goals or profits (e.g., a 10% increase in sales). **It is possible for some options to time-vest but not performance-vest. This can create an unclear legal situation about the status of vesting and the value of options at all. *Liquidity: ESOs for private companies are not traditionally liquid, as they are not publicly traded. *Duration (Expiration): ESOs often have a maximum maturity that far exceeds the maturity of standardized options. It is not unusual for ESOs to have a maximum maturity of 10 years from date of issue, while standardized options usually have a maximum maturity of about 30 months. If the holder of the ESOs leaves the company, it is not uncommon for this expiration date to be moved up to 90 days. *Non-transferable: With few exceptions, ESOs are generally not transferable and must either be exercised or allowed to expire worthless on expiration day. There is a substantial risk that when the ESOs are granted (perhaps 50%) that the options will be worthless at expiration. This should encourage the holders to reduce risk by selling exchange traded call options. In fact it is the only efficient way to manage those speculative ESOs and SARs. Wealth Managers generally advise early exercise of ESOs and SARs, then sell and diversify. *
Over the counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid presc ...
: Unlike exchange traded options, ESOs are considered a private contract between the employer and employee. As such, those two parties are responsible for arranging the clearing and settlement of any transactions that result from the contract. In addition, the employee is subjected to the credit risk of the company. If for any reason the company is unable to deliver the stock against the option contract upon exercise, the employee may have limited recourse. For exchange-trade options, the fulfillment of the option contract is guaranteed by the Options Clearing Corp. *Tax issues: There are a variety of differences in the tax treatment of ESOs having to do with their use as compensation. These vary by country of issue but in general, ESOs are tax-advantaged with respect to standardized options. See
below Below may refer to: *Earth * Ground (disambiguation) * Soil *Floor * Bottom (disambiguation) *Less than *Temperatures below freezing *Hell or underworld People with the surname * Ernst von Below (1863–1955), German World War I general *Fred Bel ...
. **In the U.S., stock options granted to employees are of two forms that differ primarily in their tax treatment. They may be either: *** Incentive stock options (ISOs) *** Non-qualified stock options (NQSOs or NSOs) **In the UK, there are various approved tax and employee share schemes, including Enterprise Management Incentives (EMIs). (Employee share schemes that aren’t approved by the UK government don’t have the same tax advantages.)


Valuation

As of 2006, the
International Accounting Standards Board The International Accounting Standards Board (IASB) is the independent accounting standard-setting body of the IFRS Foundation. The IASB was founded on April 1, 2001, as the successor to the International Accounting Standards Committee (IASC). ...
(IASB) and the
Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securi ...
(FASB) agree that the fair value at the grant date should be estimated using an option pricing model. Via requisite modifications, the valuation should incorporate the features described above. Note that, having incorporated these features, the value of the ESO will typically "be much less than Black–Scholes prices for corresponding market-traded options...." Here, in discussing the valuation
FAS 123 Revised
(A15)—which does not prescribe a specific valuation model—states that:
a lattice model can be designed to accommodate dynamic assumptions of expected volatility and dividends over the option's contractual term, and estimates of expected option exercise patterns during the option's contractual term, including the effect of blackout periods. Therefore, the design of a lattice model more fully reflects the substantive characteristics of a particular employee share option or similar instrument. Nevertheless, both a lattice model and the Black–Scholes–Merton formula, as well as other valuation techniques that meet the requirements ... can provide a fair value estimate that is consistent with the measurement objective and fair-value-based method....
A
KPMG KPMG International Limited (or simply KPMG) is a multinational professional services network, and one of the Big Four accounting organizations. Headquartered in Amstelveen, Netherlands, although incorporated in London, England, KPMG is a net ...
study from 2012 suggests that most ESO valuation models use standard valuations based either on Black-Scholes or on lattice approach which have been adjusted to compensate for the special features of typical ESOs. The IASB reference to "contractual term" requires that the model incorporates the effect of
vesting In law, vesting is the point in time when the rights and interests arising from legal ownership of a property is acquired by some person. Vesting creates an immediately secured right of present or future deployment. One has a vested right to an ...
on the valuation. As above, option holders may not exercise their option prior to their vesting date, and during this time the option is effectively European in
style Style is a manner of doing or presenting things and may refer to: * Architectural style, the features that make a building or structure historically identifiable * Design, the process of creating something * Fashion, a prevailing mode of clothing ...
. "Blackout periods", similarly, requires that the model recognizes that the option may not be exercised during the quarter (or other period) preceding the release of financial results (or other corporate event), when employees would be precluded from trade in company securities; see
Insider trading Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information ...
. During other times, exercise would be allowed, and the option is effectively American there. Given this pattern, the ESO, in total, is therefore a
Bermudan option In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) options. These options ...
. Note that employees leaving the company prior to vesting will forfeit unvested options, which results in a decrease in the company's liability, and this too must be incorporated into the valuation. The reference to "expected exercise patterns" is to what is called "suboptimal early exercise behavior".Mun, 2004, pg. 126. Here, regardless of theoretical considerations—see —employees are assumed to exercise when they are sufficiently " in the money". This is usually proxied as the share price exceeding a specified multiple of the
strike price In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity. The strike price may be set ...
; this multiple, in turn, is often an empirically determined average for the company or industry in question (as is the rate of employees exiting the company). "Suboptimal", as it is this behavior which results in the reduction in value relative to Black–Scholes. The preference for lattice models is that these break the problem into discrete sub-problems, and hence different rules and behaviors may be applied at the various time/price combinations as appropriate. (The binomial model is the simplest and most common lattice model.) The "dynamic assumptions of expected volatility and dividends" (e.g. expected changes to dividend policy), as well as of forecast changes in
interest rates An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, t ...
(as consistent with today's term structure), may also be incorporated in a lattice model; although a finite difference model would be more correctly (if less easily) applied in these cases. Black-Scholes may be applied to ESO valuation, but with an important consideration: option maturity is substituted with an "effective time to exercise", reflecting the impact on value of vesting, employee exits and suboptimal exercise. For modelling purposes, where Black-Scholes is used, this number is (often) based on SEC Filings of comparable companies. For reporting purposes, it can be found by calculating the ESO's '' Fugit'', "the ( risk-neutral) expected life of the option", directly from the lattice, or back-solved such that Black-Scholes returns a given lattice-based result (see also ). The Hull-
White White is the lightest color and is achromatic (having no hue). It is the color of objects such as snow, chalk, and milk, and is the opposite of black. White objects fully reflect and scatter all the visible wavelengths of light. White o ...
model (2004) is widely used, while the work of
Carpenter Carpentry is a skilled trade and a craft in which the primary work performed is the cutting, shaping and installation of building materials during the construction of buildings, ships, timber bridges, concrete formwork, etc. Carpenters t ...
(1998) is acknowledged as the first attempt at a "thorough treatment"; see also Rubinstein (1995). These are essentially modifications of the standard binomial model (although may sometimes be implemented as a Trinomial tree). See
below Below may refer to: *Earth * Ground (disambiguation) * Soil *Floor * Bottom (disambiguation) *Less than *Temperatures below freezing *Hell or underworld People with the surname * Ernst von Below (1863–1955), German World War I general *Fred Bel ...
for further discussion, as well as calculation resources, and Contingent claim valuation more generally. Although the
Black–Scholes model The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments. From the parabolic partial differential equation in the model, known as the Black ...
is still applied by the majority of public and private companies, through September 2006, over 350 companies have publicly disclosed the use of a (modified) binomial model in SEC filings. Often, the inputs to the pricing model may be difficult to determine
U.S. Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against mark ...

Staff Accounting Bulletin no. 107
2005.
—usually stock volatility, expected time to expiration, and relevant exercise multiples—and a variety of commercial services are now offered here.


Accounting and taxation treatment


General accepted accounting principles in the United States (GAAP)

The US GAAP accounting model for employee stock options and similar share-based compensation contracts changed substantially in 2005 as FAS123 (revised) began to take effect. According to
US generally accepted accounting principles Generally Accepted Accounting Principles (GAAP or U.S. GAAP, pronounced like "gap") is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC) and is the default accounting standard used by companies based in the Uni ...
in effect before June 2005, principally FAS123 and its predecessor APB 25, stock options granted to employees did not need to be recognized as an expense on the
income statement An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
when granted if certain conditions were met, although the cost (expressed under FAS123 as a form of the fair value of the stock option contracts) was disclosed in the notes to the financial statements. This allows a potentially large form of employee compensation to not show up as an expense in the current year, and therefore, currently overstate income. Many assert that over-reporting of income by methods such as this by American corporations was one contributing factor in the Stock Market Downturn of 2002. Employee stock options have to be expensed under US GAAP in the US. Each company must begin expensing stock options no later than the first reporting period of a
fiscal year A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ju ...
beginning after June 15, 2005. As most companies have fiscal years that are calendars, for most companies this means beginning with the first quarter of 2006. As a result, companies that have not voluntarily started expensing options will only see an income statement effect in fiscal year 2006. Companies will be allowed, but not required, to restate prior-period results after the effective date. This will be quite a change versus before, since options did not have to be expensed in case the exercise price was at or above the stock price (intrinsic value based method APB 25). Only a disclosure in the footnotes was required. Intentions from the international accounting body IASB indicate that similar treatment will follow internationally. As above, "Method of option expensing: SAB 107", issued by the SEC, does not specify a preferred valuation model, but 3 criteria must be met when selecting a valuation model: The model is applied in a manner consistent with the fair value measurement objective and other requirements of FAS123R; is based on established financial economic theory and generally applied in the field; and reflects all substantive characteristics of the instrument (i.e. assumptions on volatility, interest rate, dividend yield, etc.) need to be specified.


Taxation

Most employee stock options in the US are non-transferable and they are not immediately exercisable although they can be readily hedged to reduce risk. Unless certain conditions are satisfied, the IRS considers that their "fair market value" cannot be "readily determined", and therefore "no taxable event" occurs when an employee receives an option grant. For a stock option to be taxable upon grant, the option must either be actively traded or it must be transferable, immediately exercisable, and the fair market value of the option must be readily ascertainable. Depending on the type of option granted, the employee may or may not be taxed upon exercise. Non-qualified stock options (those most often granted to employees) are taxed upon exercise as standard income. Incentive stock options (ISO) are not but are subject to Alternative Minimum Tax (AMT), assuming that the employee complies with certain additional tax code requirements. Most importantly, shares acquired upon exercise of ISOs must be held for at least one year after the date of exercise if the favorable capital gains tax are to be achieved. However, taxes can be delayed or reduced by avoiding premature exercises and holding them until near expiration day and hedging along the way. The taxes applied when hedging are friendly to the employee/optionee. The Sharesave scheme is a tax-efficient employee stock option program in the United Kingdom.


Excess tax benefits from stock-based compensation

This item of the profit-and-loss (P&L) statement of companies' earnings reports is due to the different timing of option expense recognition between the GAAP P&L and how the IRS deals with it, and the resulting difference between estimated and actual tax deductions. At the time the options are awarded, GAAP requires an estimate of their value to be run through the P&L as an expense. This lowers operating income and GAAP taxes. However, the IRS treats option expense differently, and only allows their tax deductibility at the time the options are exercised/expire and the true cost is known. This means that cash taxes in the period the options are expensed are higher than GAAP taxes. The delta goes into a deferred income tax asset on the balance sheet. When the options are exercised/expire, their actual cost becomes known and the precise tax deduction allowed by the IRS can then be determined. There is then a balancing up event. If the original estimate of the options' cost was too low, there will be more tax deduction allowed than was at first estimated. This 'excess' is run through the P&L in the period when it becomes known (i.e. the quarter in which the options are exercised). It raises net income (by lowering taxes) and is subsequently deducted out in the calculation of operating cashflow because it relates to expenses/earnings from a prior period.


Criticism

Alan Greenspan was critical of the structure of present-day options structure, so John Olagues created a new form of employee stock option called "dynamic employee stock options", which restructure the ESOs and SARs to make them far better for the employee, the employer and wealth managers.
Charlie Munger Charles Thomas Munger (born January 1, 1924) is an American billionaire investor, businessman, and former real estate attorney. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett; Buffett has described Mung ...
, vice-chairman of
Berkshire Hathaway Berkshire Hathaway Inc. () is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. Its main business and source of capital is insurance, from which it invests the float (the retained premi ...
and chairman of Wesco Financial and the Daily Journal Corporation, has criticized conventional stock options for company management as "... capricious, as employees awarded options in a particular year would ultimately receive too much or too little compensation for reasons unrelated to employee performance. Such variations could cause undesirable effects, as employees receive different results for options awarded in different years", and for failing "to properly weigh the disadvantage to shareholders through dilution" of stock value. Munger believes profit-sharing plans are preferable to stock option plans. According to
Warren Buffett Warren Edward Buffett ( ; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net ...
, investor Chairman & CEO of Berkshire Hathaway, " ere is no question in my mind that mediocre CEOs are getting incredibly overpaid. And the way it's being done is through stock options." Other criticisms include: # Dilution can be very costly to shareholder over the long run. # Stock options are difficult to value. # Stock options can result in egregious compensation of executive for mediocre business results. # Retained earnings are not counted in the exercise price. # An individual employee is dependent on the collective output of all employees and management for a bonus.


Indexed options supporters

Other critics of (conventional) stock option plans in the US include supporters of "reduced-windfall" or indexed options for executive/management compensation. These include academics such as
Lucian Bebchuk Lucian Arye Bebchuk (born 1955) is a professor at Harvard Law School focusing on economics and finance. Bebchuck has a B.A. in mathematics and economics from the University of Haifa (1977), an LL.B. from the University of Tel Aviv (1979), an L ...
and Jesse Fried, institutional investor organizations the Institutional Shareholder Services and the Council of Institutional Investors, and business commentators. Reduced-windfall options would adjust option prices to exclude "windfalls" such as falling interest rates, market and sector-wide share price movements, and other factors unrelated to the managers' own efforts. This can be done in a number of ways such as * `indexing` or otherwise adjusting the exercise price of options to the average performance of the firm's particular industry to screen out broad market effects, (e.g. instead of issuing X many options with an exercise price equal to the current market price of $100, grant X many options whose strike price is $100 multiplied by an industry market index) or * making the vesting of at least some options contingent on share price appreciation exceeding a certain benchmark (say, exceeding the appreciation of the shares of the bottom 20% of firm in the company's sector). According to Lucian Bebchuk and Jesse Fried, "Options whose value is more sensitive to managerial performance are less favorable to managers for the same reasons that they are better for shareholders: Reduced-windfall options provide managers with less money or require them to cut managerial slack, or both." However, as of 2002, only 8.5% of large public firms issuing options to executives conditioned even a portion of the options granted on performance. A 1999 survey of the economics of executive compensation lamented that
Despite the obvious attractive features of relative performance evaluation, it is surprisingly absent from US executive compensation practices. Why shareholders allow
CEO A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...
s to ride bull markets to huge increases in their wealth is an open question.


Controversy

Stock option expensing has been surrounded in controversy since the early 1900s. The earliest attempts by accounting regulators to expense stock options were unsuccessful and resulted in the promulgation of FAS123 by the
Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securi ...
which required disclosure of stock option positions but no income statement expensing, per se. The controversy continued and in 2005, at the insistence of the SEC, the FASB modified the FAS123 rule to provide a rule that the options should be expensed as of the grant date. One misunderstanding is that the expense is at the fair value of the options. This is not true. The expense is indeed based on the fair value of the options but that fair value measure does not follow the fair value rules for other items which are governed by a separate set of rules under ASC Topic 820. In addition the fair value measure must be modified for forfeiture estimates and may be modified for other factors such as liquidity before expensing can occur. Finally the expense of the resulting number is rarely made on the grant date but in some cases must be deferred and in other cases may be deferred over time as set forth in the revised accounting rules for these contracts known as FAS123 (revised).Se
Summary of Statement No. 123 (revised 2004)
and, for the earlier interpretation
Accounting for Certain Transactions involving Stock Compensation—an interpretation of APB Opinion No. 25
FASB.


See also

*
Convertible security A convertible security is a financial instrument whose holder has the right to convert it into another security of the same issuer. Most convertible securities are convertible bonds or preferred stocks that pay regular interest and can be converted ...
* Employee stock ownership program * Employee stock purchase plan * Incentive stock option *
Insider trading Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information ...
* Non-qualified stock option * Profit sharing * Restricted stock *
Stock dilution Stock dilution, also known as equity dilution, is the decrease in existing shareholders' ownership percentage of a company as a result of the company issuing new equity. New equity increases the total shares outstanding which has a dilutive eff ...
* Stock option expensing * Sharesave,a tax-efficient employee stock option scheme in the United Kingdom


References


External links and references

General reference * John Olagues and John Summa, ''Getting Started in Employee Stock Options'',
John Wiley & Sons John Wiley & Sons, Inc., commonly known as Wiley (), is an American multinational publishing company founded in 1807 that focuses on academic publishing and instructional materials. The company produces books, journals, and encyclopedias, ...
, 2010. . * John Summa
''Employee Stock Options: Introduction''
, investopedia.com Valuation *Les Barenbaum, Walt Schubert, and Bonnie O’Rourke

''The CPA Journal'', December 2004. *Luis Betancourt, Charles P. Baril and John W. Briggs

'' Journal of Accountancy'', December 2005. * Jennifer Carpenter
The exercise and valuation of executive stock options
''
Journal of Financial Economics The ''Journal of Financial Economics'' is a peer-reviewed academic journal published by Elsevier, covering the field of finance. It is considered to be one of the premier finance journals. According to the ''Journal Citation Reports'', the journ ...
, 48 (1998) 127-158. *Joseph A. D’Urso
Valuing Employee Stock Options: A Binomial Approach Using Microsoft Excel
''The CPA Journal'', July 2005. *Tim V. Eaton and Brian R. Prucyk

'' Journal of Accountancy'', April 2005. (Discusses Black–Scholes-based implementation.) *Lookman Buky Folami, Tarun Arora, and Kasim L. Alli
Using Lattice Models to Value Employee Stock Options Under SFAS 123(R)
''The CPA Journal'', September 2006. *David Harper
''Tutorial: accounting and valuation treatment of employee stock options''
, investopedia.com * John C. Hull and Alan White
How to Value Employee Stock Options
''
Financial Analysts Journal The ''Financial Analysts Journal'' is a quarterly peer-reviewed academic journal covering investment management, published by Routledge on behalf of the CFA Institute. It was established in 1945 and , the editor-in-chief is William N. Goetzmann. ...
'', Jan/Feb 2004. (2002 Preprint; Software accompanying the paper available below.) *Tim Leung and Ronnie Sircar
Accounting for Risk Aversion, Vesting, Job Termination Risk and Multiple Exercises in Valuation of Employee Stock Options
''Mathematical Finance'', 19, January 2009. *Johnathan Mun, ''Valuing Employee Stock Options'', Wiley Finance, 2004. . * Mark Rubinstein
On the Accounting Valuation of Employee Stock Options
'' Journal of Derivatives'', Fall 1995. * SEC
Staff Accounting Bulletin no. 107
2005. (Implementation guidance - discussing, i.a., situations of limited valuation data.) *Graeme West
''A Finite Difference Model for Valuation of Employee Stock Options''
2009. Issues * John Abowd and David Kaplan
Executive Compensation: Six Questions That Need Answering
''
Journal of Economic Perspectives The ''Journal of Economic Perspectives'' (JEP) is an economic journal published by the American Economic Association. The journal was established in 1987. It is very broad in its scope. According to its editors its purpose is: #to synthesize and ...
'', 13 (1999). *Marianne Bertrand and Sendhil Mullainathan
Are CEOs Paid for Luck
''
Quarterly Journal of Economics ''The Quarterly Journal of Economics'' is a peer-reviewed academic journal published by the Oxford University Press for the Harvard University Department of Economics. Its current editors-in-chief are Robert J. Barro, Lawrence F. Katz, Nathan ...
'', 2001. *'' Business Week''
Options: Have an Exit Plan
June 18, 2007. *'' The Economist''
Shares and share unlike.
Aug. 5, 1999. (questioning whether investors (as owners) actually gain from large option packages for top management.) *Brian J. Hall and Jeffrey Liebman
Are CEOs really paid like Bureaucrats?
''Quarterly journal of Economics'', 1998. *Brian J. Hall and Kevin J. Murphy, ''The Trouble with Stock Options'', The Journal of Economic Perspectives, 2003, Vol. 17, Issue 3, pp. 49–70. *Randall A. Heron and Erik Lie,  , ''Journal of Financial Economics'', 2006. *John D. Menke,
How to Structure Stock Ownership Plans for Management Employees
''. Calculation resources *Brian K. Boonstra
Model For Pricing ESOs
(Excel spreadsheet and VBA code) *Joseph A. D’Urso
Valuing Employee Stock Options
(Excel spreadsheet) * Thomas Ho
Employee Stock Option Model
(Excel spreadsheet) *John Hull
software based on the article: How to Value Employee Stock Options
(Excel spreadsheet) *Montgomery Investment Technology
Lattice ESO
(web based) *Personal Tax Calculator
Options Calculator
(web based) *
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Basic FASB 123 calculator
(web based; archived) *Alternative Minimum Tax Calculation
Employee Stock Option Fund
(web based) {{DEFAULTSORT:Employee Stock Option Corporate finance Options (finance)