Abstract
Abstract Corporations often seek to motivate managers to think and act long-term by including stock options as part of their compensation. This leads to several interesting consequences. For example, how should the stock options be valued and reported in the financial statements? What types of conflicts of interests (for example, between the CEO and shareholders) does the use of stock options attempt to resolve? Which types of firms would be more likely to use stock options? Would certain firms be penalized in the market if they were forced to disclose the often sizable value of stock options in CEO compensation packages? This case provides a framework for valuing stock options to determine their effect on CEO compensation and corporate net income. Such an analysis helps illustrate that understanding and selecting a GAAP has ‘managerial’ as well as ‘financial’ accounting implications.
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