Research On Stock Options

As a form of compensations, stock options appeared in America in 1950s, and caught attention of American companies in 1980s, and then extended to European and Asian countries quickly. It is reported that at least 89 per cent of the top 500 industrial enterprises in the world have applied stock options to then" payment systems, not to mention the high-tech enterprises, which have established stock options widely and benefited a lot from them. Since 1990s, enterprises in china have paid attention to stock options. However, because of the limitations of laws in china, we still have no true stock options. To make better use of stock options, it is necessary for us to make deep research on stock options that have been successful in America.At first, this thesis makes a brief introduction of stock options. A stock option gives the holder the right to purchase shares of company stock at a set price. In most cases, the purchase price is the fair market value of the stock on the date the option is granted. Stock options can in the form of incentive stock options (ISOs) or nonqualified stock options (NSOs). If an option satisfies several conditions imposed by Federal tax law, it will be classified as an ISO and receive special tax treatment. If the option does not fulfill these conditions, it will be classified as a NSO.Chapter 2 introduces the management of stock options. The establishment and implementation of stock options involves in a lot of work, and many organizations and departments such as the compensation committee, the human resource department, the finance department, the securities corporation, the professional consulting corporation and so on will participate in this process. When establishing a stock option, the company should take into account the aim, the beneficiary, the scale and the type of the plan. After that, the company should institute rules to regulate the grant and the exercise of the option and the delivery of the stock. In addition, the company should be responsible for information transfer in the whole process.Chapter 3 describes the regulations of security law on stock options. As far as the stock option is concerned, a company should comply with the Securities Act of 1933 and the Securities Exchange Act of 1934. The former prescribes the issue of thestock while the latter supervises the exchange of the stock. Because the exercise of the option usually leads to the issue of the stock, the company should register with Securities and Exchange Commission according to the Securities Act of 1933. While under the Securities Exchange Act of 1934, the insiders have to report their holdings and transactions in company stock. If an insider engages in a "short-wing" transaction (i.e., a sale and purchase (or a purchase and sale) of company stock within a six-month period), the insider is required to surrender to company all profits from such "matching" transactions. However, employee compensation and benefit plans can qualify for the Rule 16b-3 exemption from the rules requiring forfeiture of profits.Chapter 4 explains the accounting rules associated with stock options. Nowadays, the company in America could calculate its accounting charges according to Accounting Principles Board ("APB") Opinion 25 or Statement of Financial Accounting Standard No. 123. The underlying principle of APB Opinion 25 is that the amount of the accounting charge is determined by the difference between the market value of the stock on the "measurement date" and the price the grant recipient will have to pay for the stock. The result of APB Opinion 25 is that the grant of stock options having an exercise price equal to the FMV of company stock on the date of grant generally will result in no accounting charge. While Statement 123 establishes a "fair value " based method of accounting for stock-based compensation plans. Take stock options for example. The value of the stock option should be calculated by stock option pricing models such as Black-Scholes. Companies are encouraged, but not required, to adopt Stat...