Accounting for Compensation at a Company Essay

The stock option compensation notes deal with the new CICA standards that has forced CVT to recognize and disclose stock option compensation expenses. Prior to the new standards, CVT could potentially give large payoffs to stockholders who exercised their stock options without reducing net income. Since the company 's options are sold for less than fair market value, there is a compensation expense or a loss because the share wasn 't sold at fair market value for CVT that must be disclosed. As of October 1, 2002, the company is required to disclose the loss in Pro Forma earnings, which are just estimates of their losses in terms of money lost on shares due to stock options. This section shows that there was a huge jump in compensation expenses from 2003 to 2004, and that may be of concern to potential investors because when more and more options are exercised, earnings per share decreases.

Many years ago stock options were rarely used as incidental benefits for top executives. Nowadays, compensating employee whit stock options has become an increasingly common practice. Before the year 1996, only the intrinsic value method was used to record these transactions. This method distorted the issuer’s reported financial condition and results of operations, which could lead to inappropriate decisions taken by investors. Followed by the increased use of employee stock options and the surrounding controversy of its recording method, on the year 1996 the fair value method was introduced to be used as an alternative to the intrinsic method and on 2004 the intrinsic value method was completely discontinued. The Fair value method

December 16, 2004 the Financial Accounting Standards Board issued Statement 123, Shared- Based Statement, which took the place of Accounting for Stock-Based Compensation and replaced Accounting Principal Board Opinion No. 25 Accounting for Stock issued to Employees. Share-based payment is “a transaction in which the entity receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity 's shares or other equity instruments of the entity. The accounting

In 1993, the FASB created a standard that required companies to expense costs related to employee stock options – previously, those costs were not recorded as they allowed companies to avoid related income tax expenses. Many companies in the high-tech industry resented this decision as a significant portion of their employee compensation took the form of stock options, and the expensing of such compensation left them with much higher operating costs than in previous years. In response to this standard, these companies appealed to Congress in effort to halt the enactment of this rule. However, Warren Buffet, along with several large companies such as Coca-Cola and GE agreed with the FASB’s decision and lobbied in support of this issue. The standard was discussed again in 2002 with FASB’s attempt to converge with the IASB’s rule on the expensing of stock options. This created one of the largest issues in the FASB’s history, as it resulted in the FASB receiving over 14,000 comment letters – a record number of letters for a single proposal.

Executive compensation packages have been used both successfully and unsuccessfully to solve the principal-agent problem facing corporations these days. In this study, we focus on a specific element of an executive compensation package, stock options. The use of stock options as a form of senior executive compensation has been studied extensively to be a testament to the success of it’s ability to realign executive with shareholder interests. However, as the study reveals, prior to the Sarbanes-Oxley Act of 2002, there were many problems with the usage of stock options within corporations that had a weak corporate governance structure. Problems included executive’s incentives to focus on short run profit, take on risky business strategies, and manipulations (legal and illegal) to fulfill executive self-interests. While it is difficult to measure the true effect of stock option’s influence on executive performance and behaviors, we see that the problems with stock option usage far outweigh the benefits of stock options prior to the implementation of the Sarbanes-Oxley Act.

The customary practice in granting stock options is to have the strike price set as the market price on the day the grant is made.   Grantees can later sell these stock shares at a higher price and make a profit.  Over the last several years, several companies have been accused of issuing stock options to their top executives at the lowest stock price of the year.   This could lead to very large profits.  Such manipulation of the strike price is unethical and in some cases may be illegal.  In some companies, granting options at the lowest price happened several years in a row. When asked about this practice, a company spokesperson responded, "It's just a coincidence. There are about 250 trading days in a year, so there is a reasonable

1 Bothclasses of shares were traded on the New York Stock Exchange with tickers MOG-A and MOG-Brespectively. Given Moog’s generally strong retention of employees, Jimmy was highly confidentthat he would have a long career with Moog, so the vesting periods didn’t worry him.However, he wasn’t sure whether he should be concerned about some additional language whichwas supposedly “standard” at Moog: “Where employment is terminated for cause, you will beentitled to the cash equivalent of any unutilized vacation, but will not be entitled to participate in any profit share award or incentive compensation payable after the date of termination. In such circumstances, the right to exercise any stock options is also terminated. Upon a voluntarytermination, you will receive employment benefits, up to the date of termination, as well as the cash value of any unutilized vacation benefits and any vested stock options may be exercised but you will not be entitled to receive any profit share award or incentive compensation payable after termination.Upon an involuntary termination other than for cause, all stock option and restricted stock grants shall vest immediately and you will be entitled to receive, for one year, certain perquisites

In theory, an optimal executive compensation scheme overcomes the principal-agent problem by aligning the interests of executives and shareholders, and subsequently providing executives an incentive to maximise shareholder value. Furthermore, an executive compensation scheme must be sufficient to attract and retain the appropriate executive. According to Bognanno (2014), restricted stocks and stock options are the most common forms of equity-based compensation schemes, with stock options accounting for almost half of US CEO compensation in 2000. Since economic agents respond to incentives, the intuition behind equity-based compensation schemes is that providing executives with a form of compensation that is tied with the performance of the company, will provide an incentive for the executive to maximise shareholder value. For instance, assume an executive is provided with a stock option of 100 stocks with a strike price of $10, the executive will only receive a payoff if the stock price is above $10 (see Figure 1). If the stock price is above the strike price, the executive is able to exercise the option by purchasing the stock at $10 and selling the stock on the spot market. Since the executive has an incentive to maximise his or her payoff, the executive’s interests are in theory, aligned with shareholders and the executive is expected undertake activities which maximises shareholder value.

Stock options are an integral component of many compensation packages, and have the potential to provide advantages to both the granting employer and to the option holder. There are many traps for the unwary which can lead to unintended—and potentially very costly—consequences. To avoid these negative consequences, and to ensure that the intended benefits of the stock options may be realized, employers should review the current procedures implemented for their existing stock option programs and consider the tax issues discussed above prior to implementing new programs or issuing new options. In the event any failures or errors are discovered, employers may be able to mitigate the resulting expense by taking prompt corrective action.

Harris Enterprise is announcing that employee stock purchases will be extended to current full time employees starting July 2, 2015. You may purchase these exclusive benefits at competitive market value which will includes a specialized employee discount. Employee stock options have been created as a compensation plans benefitting companies, stockholders, and employees. There are a few important pieces of information all employees should know:

In other words, it is an option issued with the right to purchase a future stock at a set price given today. These can be both Incentive Stock Options (ISO’s), or Non-qualified Stock Options (NSO’s) (1). There currently does exist a handful of formulae that attempt to provide accurate metric tools for determining a numerical representation of stock option value. But this is typically done as an amount for accountants to put on their books as non-taxable income. These metrics almost all come from a series of decision reached by the Financial Accounting Standards Board (FASB) in 1972. They only specified how to record the cost of options on the books. The rule being that the value of an option was the difference between the current fair market value of the stock and exercise price of an option. The FASB reviewed these rules again in 1984 and eventually came out with nothing more than a few suggestions, ultimately they didn’t provide any hardline rules for valuing the fair market value of stock options. This makes computing the compensation values in them even more difficult.

Short-term employment benefit is one of category for employment benefit and this category is basic that required company to provide to employees as compensated or contribution for employees in exchange of service provided to company. Apollo and Dutch Lady also provide wages and salaries and annual leave paid to employees as basic in short-term employment benefits. Besides that, contribution to pension fund like EPF also statutory to company that operates in Malaysia in order to take care of employees benefit in post-employment and both company also show this contribution in their annual report. Long term employment benefits and termination benefits depend on company either to provide or not. From above amount of wages and salaries, contribution to pension fund and others benefit, we learnt that Dutch Lady have big market and more employees rather than Apollo and from that Dutch Lady provide more benefits to employees. In conclusion, Malaysia required companies to provide employment benefits to employees and discuss in annual report and accounts of the year. Employees will find those benefits and use as guidelines to choose what company should they choose to work and usually they choose company that have more employment benefits and suitable with the employee which will provide service to

For the year 2013 and 2014 the net refunds and income tax paid is about $249 and $253.6. The compensation expense for our stock-settled share unit awards totaled $26.1 million, $26.7 million for the year 2014 and 2013. The tax benefit related to the stock-settled share unit award

The options those are underwater should be repriced or should be replaced with additional quality grants. Falling stock price could be owing to market pressure and not necessarily the refection of executives bad performance, so compensation should be adjusted due to stock price decreased in case CEO wants to exercise his options.

Part one, describe the role of stock options in the growth of executive compensation over last 20 years.