EVOLUTION OF FIRMS’ VIEW OF EMPLOYEE STOCK OPTION COMPENSATION OVER TIME

Abstract

This paper examines whether firms viewed Employee Stock Options granted to employees in lieu of cash compensation as an expense and whether their view changed over time due to heated public debate and extensive academic studies over the issue. The result shows that firms internally treat stock options granted to employees as a true expense; however, publicly they claim that it is not an expense. This could be due to the fact that firms try to avoid expenses to be recorded in their financial statements, which will result in lower earnings per share and thus lower stock prices.