Restricted Stock versus Stock Options: The Case of Jones Apparel Group, Inc.

Abstract

In recent years, the structure of executive/employee compensation packages has focused less on stock options and more on restricted stock. The Financial Accounting Standards Board (FASB) characterizes both of these alternatives as stockbased compensation. The reasons for the shift are numerous and include increased scrutiny of executive pay after recent corporate scandals and a renewed emphasis on the expensing of stock options using the fair value method. In this case, we focus on the issues that led Jones Apparel Group, Inc. to change its focus from stock options to restricted stock in the compensation package of its Chief Executive Officer. Jones was not subject to any scandal or corporate malfeasance, but the case demonstrates how recent events have impacted companies that use stock-based compensation. The case allows students to compare and contrast the corporate governance and accounting impacts of stock options and restricted stock.