Compare the payoffs for executives from a traditional stock option, where manage
ID: 2501127 • Letter: C
Question
Compare the payoffs for executives from a traditional stock option, where management is awarded 100,000 options at an exercise price of $50 (the stock price at date of issue), versus 100,000 of performance units issued under Boeing's performance plan. Which plan provides more effective incentives for management? Why? Which financial reporting method (the fair value method or the variable plan method) better reflects the economics of Boeing's performance plan? Which method of stock-based compensation reporting should management recommend to Boeing's Board? Why? Why do you think the FASB proposal to require companies to report an expense for stock options using the fair value method was so controversial with corporations?Explanation / Answer
1.
stock option unit plan provides more effective incentives for management. A Performance Unit Plan allows the company to select two or more financial metrics to be used to value units that are awarded to employees. The units will be converted to cash payments at a future time. The employees are rewarded for achieving the targets outlined. Commonly, the company will award new PUPs each year with either the same or different targets. whereas An Employee Stock Option Plan is a benefit plan for employees which makes them owners of stocks in the company. It is an incentive scheme which helps the company to retain existing employees by issuing them share at low price ; ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price.
2.
Fair value method reflects better economics of Boeing performance plan
3. stock option plan
4. yes, FASB proposal to require companies to report an expense for stock option using fair value method was controversial with corporations
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.