Stock Options

Paper Summary:

This paper explains that stock options have been hailed as a great way to share ownership, attract and retain employees in a tight labor market, and "fuel the entrepreneurial fire?; but, at the same time, they have been condemned as a major cause of the high-profile business scandals during 2000-01 and the subsequent down-turn in the U.S. stock markets.
The author points out that another attraction of stock options from the employees? point of view is that the only capital gains tax is applicable on gains made from stock options. The paper relates the future of stock options does not appear bright because of accounting changes requiring firms to reflect the cost of stock options in their earnings as expenses by 2005.

Table of Contents
What are Stock Options?
History of Stock Options
Advantages of Stock Options
Disadvantages
Future of Stock Options

From the Paper:

"Stock options first began to appear in the US businesses in the 1950s, but at the time they were generally modest in size. The trend of offering stock options (particularly to the top managers) began to take off in the late 1980s and by the turn of the century the typical CEO of financial sector firm was receiving stock options worth $55 million a year?more than 30 times his salary. (Shapiro, 2002). The offer of stock options became more widespread and the NCEO estimated that as of 2001, up to 10 million employees were receiving stock options in the US."

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