Sally Jameson: Valuing Stock Options in a Compensation Package (Abridged)

With an increase in business, the firm recruited widely. The firm, which had employed 2,000 people in 1982, tripled to 6,000 people by 1987.” Due to excessive focus on generating revenues, one insider put it as, “competing fiefdoms replaced interconnected businesses.” and “Making money was mostly what mattered.”

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).

Harvard University is the pinnacle of social and academic success. Just the name, Harvard, brings to mind twenty year-old future business leaders and politicians gathering around in the library to discuss stock options and boating knots while they finish up their assignments for macro-economic courses. Exciting for some, but for most, as dull as it gets. Yet, after visiting the campus, I have come away with a very different perspective of Harvard. There’s a lot of strange and interesting stuff there—the famous Widener Library, named after a victim of the Titanic disaster, the comically ridiculous Lampoon Building, and a book bound in human flesh in the rare books library just to name a few. It makes sense that a university older than the United States –Harvard was established in 1636—to house a few oddities. Perhaps the most interesting one resides in a glass display case within Harvard’s Medical School Library, the skull of Phineas Gage.

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The case described that Dick Spencer has spent most of his career life with Tri-American Company for almost fourteen years. He was best known for being one of the top salesmen with his superior sales ability and fast-paced contribution to the sales area of the company. Spencer had a close relationship with the president of Tri-American and eventually he has questioned about his career direction where he wanted to be in the future. Hence, he formally requested the president for a transfer out of his sales division. Spencer later started as a troubleshooter of the production and administrative division (Schuler & Buller, 1996) which required different tasks and skills for his job. The significance of job transfer has turned Spencer from an “easygoing guy from the sales department” into a “cold, calculating headhunter” (Schuler & Buller, 1996).

I think the stock option compensation plan is not a bad idea when it comes to paying a corporation's board of director members. The board of director members pay option plays a vital role in the success of an organization. I think that theses board members need to be paid based on the company's financial profitability and the economic growth they help provide to the business. If the board members are paid a set wage there is no need for them to strive to excel the standard because their pay is already set in stone. If businesses compensate their board members according to the increased stock sales in the firm the board members must perform well to receive the pay they deserve. Board members have normally been compensated a yearly salary

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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.

Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 “at-the-money” employee share options on January 1, 2006. The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21.

Shortly after Sarah’s graduation ceremony a Director of Sales position had posted on her company’s internal job board. Obtaining this specific position was the reason why Sarah obtained her MBA degree. This new position requires more managerial

There are two choices for Sally Jameson to choose, either receive $5,000 in cash or a stock option instead. In this case, the company gives Sally a European style call on a non-dividend paying stock now selling for $18.75, with an exercise price of $35, and a maturity of five years. There are also two scenarios if we assume that Sally Jameson is free to sell her options at any time or to hold options until maturity date.

Please prepare an analysis of this case. Your write-up should be 4 to 7 pages. Each of the following questions should be addressed individually:

From the employee’s point of view, receiving stock options is a huge benefit as the employee can reap financial success from the firm. But is it really so?

This case study is about a student Monroe davies who is in his second year at Harvard Business school and Jim Hummer who is the CEO of a company named Whole Health Management. Jim has met Monroe before and knows that Monore is interested in entering the whole health management.

A stock option gives any employee the right to buy a certain number of shares in the company at a fixed price for a certain number of years. Employees who have been given the choice of stock options hope that the share price will go up and that they will be able to cash in by