Abstract
<p class="MsoNormal" style="text-align: justify; margin: 0in 34.2pt 0pt 0.5in;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">The escalating size of compensation packages to senior managers and investor disillusionment have resulted in growing calls for the expensing of employee stock options (ESO).<span style="mso-spacerun: yes;">&nbsp; </span>While initially slow to respond, the FASB has now mandated the expensing of ESO.<span style="mso-spacerun: yes;">&nbsp; </span>The two primary methods used to value ESO, the Black-Scholes closed form equation and the lattice model, suffer from several deficiencies<span style="mso-spacerun: yes;">&nbsp; </span>.A Simple model for valuing ESO that marks the option expense to market in succeeding financial statement dates and allows for the staggered exercise dates of option holders is available. The model is easy to understand, would have a low cost of implementation, and offers a superior estimate of the true cash flow effects associated with the opportunity cost to shareholders of ESO exercise.</span></span></p>
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