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Accounting for Executive Stock Options: A Case Study in Avoiding Tough Decisions
Author(s) -
Coulton Jeff,
Taylor Stephen
Publication year - 2002
Publication title -
australian accounting review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.551
H-Index - 36
eISSN - 1835-2561
pISSN - 1035-6908
DOI - 10.1111/j.1835-2561.2002.tb00190.x
Subject(s) - stock options , incentive , executive compensation , accounting , compensation (psychology) , stock (firearms) , business , non qualified stock option , accounting research , economics , restricted stock , finance , stock market , microeconomics , psychology , mechanical engineering , paleontology , horse , psychoanalysis , engineering , biology
We review the development of accounting requirements for executive stock options (ESOs) and find that the standard‐setting process has been susceptible to pressure groups including the corporate sector, politicians and even the accounting profession itself. The failure of Australian and overseas accounting regulators to take tough decisions may have created a systematic bias towards the use of ESOs which can result in grossly inefficient compensation structures motivated by a desire to maximise reported profits rather than to create optimal managerial incentives. We conclude that most of the arguments against recognition of stock option expense can be dismissed as blatant self‐interest at worst, or remarkably muddled thinking at best.