Accounting for executive stock options: Valuation alternatives for change

Abstract

The use of stock options in executive compensation is encouraged by current accounting treatment, which in most cases does not result in compensation expense. Amid increasing public concern about executive compensation levels, FASB is returning its attention to proposals to revise the accounting rules for stock options. At the same time, the SEC is reconsidering its requirements for disclosing the value of executive stock options. In addition to reviewing the status of these projects, this article analyzes the option valuation models that might be used if new accounting or disclosure rules are adopted.