Accounting for Stock Option
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In essence, the stock option is a warrant, which gives elected employees the option to purchase common stock at a given price over an extended period of time. Stock option is popular because it usually effectively compensates employees performance. The stock option usually has following features: 1) motivate employees to high level performance; 2) help retain executives and allow for recruitment of new talent; 3) base compensation on employee and company performance; 4) maximize the employees after-tax benefit and minimize the employees after-tax cost; and 5) use performance criteria over which the employee has control. Besides, Intilexts stock option is a long term compensation program and it attempts to develop in the executive a strong loyalty toward the company.
Currently, APB No. 25, Accounting for Stock Issued to Employees, is used to decide the compensation expense. In accordance with the provisions of APB No.25, stock-based compensatory plans can be fixed or variable. The most common are fixed stock option plan, as in the Intilext case, which vest after the employee has worked for the company for a certain period of time. With fixed option plans, both the number of options and the strike price or option price are established on the date the option are granted...