Ebook Fundamentals of futures and options markets (8th edition): Part 2
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Ebook Fundamentals of futures and options markets (8th edition): Part 2
Ebook Fundamentals of futures and options markets (8th edition): Part 2
Find more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2loyees. The options give the employees a stake in the fortunes of the company. If the company docs well so that the company’s stock price moves above the strike price, employees gain by exercising the options and then selling at the market price the stock they buy at the strike price.Employee stock Ebook Fundamentals of futures and options markets (8th edition): Part 2options haw become very popular in the last 20 years. Many companies, particularly technology companies, feel that the only way they can attract and kEbook Fundamentals of futures and options markets (8th edition): Part 2
eep the best employees is to oiler them very attractive stock option packages. Some companies grant options only to senior management; others grant thFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2ranted options and. as the company’s stock price rose, it is estimated that over 10.000 of them became millionaires. In 2003, Microsoft announced that it would discontinue the use of options and award shares of Microsoft to employees instead. But many other companies throughout the world continue to Ebook Fundamentals of futures and options markets (8th edition): Part 2 be enthusiastic users of employee stock options.Employee stock options arc popular with start-up companies. Often these companies do not have the resEbook Fundamentals of futures and options markets (8th edition): Part 2
ources to pay key employees as much as they could earn with an established company and they solve this problem by supplementing the salaries of the emFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2ome newly formed companies have even granted options to students who worked for just a few months during their summer break and in some cases this has led to windfalls of hundreds of thousands of dollars for the students!This chapter explains how stock option plans work and how their popularity has Ebook Fundamentals of futures and options markets (8th edition): Part 2been influenced by their accounting treatment. It discusses whether employee stock options help to align the interests of shareholders with those of lEbook Fundamentals of futures and options markets (8th edition): Part 2
op executives running a company. It also describes how these options arc valued and looks at backdating scandals.14.1CONTRACTUAL ARRANGEMENTSEmployee Find more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2s initially at the money.339Find more at www.downloadslide.com340CHAPTER 14The following arc usually features of employee stock option plans:1There is a vesting period during which the options cannot be exercised. This vesting period can be as long as four years.2When employees leave their jobs (vol Ebook Fundamentals of futures and options markets (8th edition): Part 2untarily or involuntarily) during the vesting period, they forfeit their options.3When employees leave (voluntarily or involuntarily) after the vestinEbook Fundamentals of futures and options markets (8th edition): Part 2
g period, they forfeit options that are out of the money and they have to exercise vested options that are in the money almost immediately.4Employees Find more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2 price.The Early Exercise DecisionThe fourth feature of employee stock option plans just mentioned has important implications. If employees, for whatever reason, want to realize a cash benefit from options that have vested, they must exercise the options and sell the underlying shares. They cannot s Ebook Fundamentals of futures and options markets (8th edition): Part 2ell the options to someone else. This leads to a tendency for employee Slock options to be exercised earlier than similar regular exchange-traded or oEbook Fundamentals of futures and options markets (8th edition): Part 2
ver-the-counter call options.Consider a call option on a stock paying no dividends. In Section 10.5 we showed that, if it is a regular call option, itFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2 life. However, the arguments we used in Section 10.5 are not applicable to employee stock options because they cannot be sold. The only way employees can realize a cash benefit from the options (or diversify their holdings) is by exercising the options and selling the stock. It is therefore not unu Ebook Fundamentals of futures and options markets (8th edition): Part 2sual for an employee stock option to be exercised well before it would be optimal to exercise the option if it were a regular exchange-traded or over-Ebook Fundamentals of futures and options markets (8th edition): Part 2
the-counter option.Should an employee ever exercise his or her options before maturity and then keep the stock rather than selling it? Assume that theFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2ptions: the employee stock option and an otherwise identical regular option that can be sold in the market. We refer to the first option as option A and the second as option B If the stock pays no dividends, we know that option B should never be exercised early. It follows that it is not optimal to Ebook Fundamentals of futures and options markets (8th edition): Part 2exercise option A and keep the stock. If the employee wants to maintain a -Stake in his or her company, a better strategy is to keep the option. ThisEbook Fundamentals of futures and options markets (8th edition): Part 2
delays paying the strike price and maintains the insurance value of the option, as described in Section 10.5. Only when it is optimal to exercise optiFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 213. it is optimal to exercise option B only when a relatively high dividend is imminent.In practice the early exercise behavior of employees varies w idely from company to company. In some companies, there is a culture of not exercising early; in others.' The only exception to this could be when an Ebook Fundamentals of futures and options markets (8th edition): Part 2executive wants to own the stock for its voting rights.Find more at www.downloadslide.comEmployee Stock Options341employees tend to exercise options aEbook Fundamentals of futures and options markets (8th edition): Part 2
nd sell the stock soon after the end of the vesting period, even if the options arc only slightly in the money.14.2DO OPTIONS ALIGN THE INTERESTS OF SFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2onably well aligned. This means that managers should be motivated to make decisions that are in the best interests of shareholders. Managers are the agents of the shareholders and. as discussed in Chapter 8, economists use the term agency costs to describe the losses shareholders experience because Ebook Fundamentals of futures and options markets (8th edition): Part 2managers do not act in their best interests. The prison sentences that arc being served in the United States by some executives who chose to ignore thEbook Fundamentals of futures and options markets (8th edition): Part 2
e interests of their shareholders can be viewed as an attempt by the United States to signal to investors that, despite Enron and other scandals, it iFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2 not straightforward. There can be little doubt that they serve a useful purpose for a start-up company. The options are an excellent way for the main shareholders, who arc usually also senior executives, to motivate employees to work long hours. If the company is successful and there is an IPO. the Ebook Fundamentals of futures and options markets (8th edition): Part 2 employees will do very well: but if the company is unsuccessful, the options will be worthless.It is the options granted to the senior executives ofEbook Fundamentals of futures and options markets (8th edition): Part 2
publicly traded companies that are most controversial. It has been estimated that employee stock options account for about 50% of the remuneration of Find more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2 price goes up. so that shareholders make gains, the executive is rewarded. However, this overlooks the asymmetric payoffs of options. If the company docs badly then the shareholders lose money, but all that happens to the executives is that they fail to make a gain. Unlike the shareholders, they do Ebook Fundamentals of futures and options markets (8th edition): Part 2 not experience a loss.2 A better type of pay for performance involves the simpler strategy of giving stock to executives. The gains and losses of theEbook Fundamentals of futures and options markets (8th edition): Part 2
executives then mirror those of other shareholders.What temptations do stock options create for a senior executive? Suppose an executive plans to exeFind more at www.downloadslide.comEmployeeStock OptionsEmployee stock options arc call options on a company’s stock granted by the company to its empl Ebook Fundamentals of futures and options markets (8th edition): Part 2rnings from one quarter to another so that the stock price increases just before the options arc exercised. Alternatively, if at-the-money options arc due to be granted to the executive in three months, the executive might be tempted to take actions that reduce the stock price just before the grant Ebook Fundamentals of futures and options markets (8th edition): Part 2date. The type of behavior we arc talking about here is of course totally unacceptable and may well be illegal. But the backdating scandals, which areEbook Fundamentals of futures and options markets (8th edition): Part 2
discussed later in this chapter, show that the way some executives have handled issues related to stock options leaves much to be desired.Even when tGọi ngay
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