Stock Options

Economic theory suggests that stock options give employees greater incentives to promote the interests of shareholders. Stock options made meeting quarterly earnings targets a must and the prime motive for extreme earnings magic. The advantage of the stock options is the one-direction participation in the success of the company. Issuing stock options lead to increase in the number of shares outstanding, resulting in stock dilution. The earnings of the company have to be spread over more shares, decreasing earnings per share (EPS). This chapter indicates that there are some stock ownership alternative to stock options such as restricted stock, phantom stock and stock appreciation rights (SARs). Such alternative options tend to be more flexible than stock options; however, the corporations usually treat the benefits as compensation expenses..