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Employee Stock Option - ESO |
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Employee Stock Option - ESO A stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because they are not generally traded on an exchange, and there is no put component (where a profit is made frome the underlying stock following). As well, employees typically must wait a specified vesting period before being allowed to exercise the option. Notes: The idea behind stock options is to align incentives between the employees and shareholders of a company. Shareholders want to see the stock appreciate, so (in theory) rewarding employees when the stock goes up puts everybody striving for the same goals. However, critics point out that there is a big difference between an option and ownership of the underlying stock. If the stock goes down, the holder of an option would lose the opportunity for a bonus, but wouldn't feel the same pain as the owner of the stock. This is especially true with employee stock options since they are often granted without any cash outlay from the employee.Another problem with employee stock options is the debate over how to value them and the extent to which they are an expense on the income statement. This is an ongoing issue in the U.S. and most countries in the developed world. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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? Mentioned in | ? References in periodicals archive | |
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Sommers shares his insights and views on employee stock options, foreign taxpayers, trust scares and wealth preservation, along with rinks to frequently asked questions, interviews, speeches and video streams on his Web site. The FERF publication, Valuing Employee Stock Options and Other Share-Based Payments: Complying with FAS 123(R), was authored by Ronald D. The International Accounting Standards Board and Canada recently issued requirements to expense share-based payments, including employee stock options. |
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