Sally Jameson Essays

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Duc Nguyen AF 495, Financial Policy Professor: Lal, Chugh Sally Jameson A. Value of each individual compensation package Stock Option Compensation In order to forecast the value of the stock option package, determining the call price is initially. There are two approaches to calculate the call price for each option, black-scholes and binominal pricing. In addition, the current stock price, exercise price, time of option, annualized interest rate, and the riskiness of the stock are the inputs for either approach. In the market, the current price is $18.75. It is much lower than the 5 year-offer exercise price for each option which is $35. Besides, the risk free rate is 6.02% for the 5-year Treasury bill (Exhibit 4). As well, the stock…show more content…
In term of accounting cost, this would be regarded as non-cash operating expenses. C. Incentives 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
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