The Stock Options Book, 25th Ed.
A comprehensive guide to employee stock options, with extensive technical details.
By Alison Wright, Alisa J. Baker, and Pam Chernoff
Format
Description
The level of legal, accounting, and regulatory complexity associated with employee stock options continues to grow. This book presents a straightforward, comprehensive overview of both the big-picture issues and the technical details related to designing and implementing equity compensation plans, emphasizing stock option plans and employee stock purchase plans. The book also looks at hot issues and provides illustrative exhibits, a glossary, a bibliography, and primary source materials, plus a seminal article by Corey Rosen on plan design.
The 25th edition includes updates to the securities law and tax law compliance chapters, plus minor changes to chapters 1, 2, and 3.
Table of Contents
Preface
Introduction
Part I: Overview of Stock Options and Related Plans
Chapter 1: The Basics of Stock Options
Chapter 2: Tax Treatment of Nonstatutory Stock Options
Chapter 3: Tax Treatment of Incentive Stock Options
Chapter 4: Plan Design and Administration
Chapter 5: Employee Stock Purchase Plans
Chapter 6: Trends in Equity Compensation: An Overview
Part II: Technical Issues
Chapter 7: Financing the Purchase of Stock Options
Chapter 8: Overview of Securities Law Issues
Chapter 9: Tax Law Compliance Issues
Chapter 10: Basic Accounting Issues
Chapter 11: Tax Treatment of Options on Death and Divorce
Chapter 12: Post-Termination Option Issues
Part III: Current Issues
Chapter 13: Legislative and Regulatory Initiatives Related to Stock Options: History and Status
Chapter 14: Cases Affecting Equity Compensation
Chapter 15: Transferable Options
Chapter 16. Evergreens, Repricings, Exchanges, and Reloads
Appendix 1: Designing a Broad-Based Stock Option Plan
Appendix 2: Primary Sources
Glossary
Bibliography
Excerpts
From Chapter 8, "Overview of Securities Law Issues"
8.5.7.1 Compensation Actually Paid
Within the disclosure itself, the company must include compensation "actually paid" to the principal executive officer (PEO)-or multiple PEOs, if there were more than one in a fiscal year-) and the average compensation "actually paid" to the non-PEO NEOs. Compensation Actually Paid is represented by total compensation reported in the Summary Compensation table (SCT) with adjustments, including the year-over-year change in value of any unvested equity awards (with certain caveats). The rationale here is to show the gap between the SCT grant date fair values of equity compensation and the actual realized pay of the executives, although the table doesn't quite get there based on what is being done within the calculations. The calculations themselves work as follows:
- The Summary Compensation table total for each individual
- minus the Stock Options & Stock Awards column values (ASC 718 valuations)
- plus the change in valuation for the reported fiscal year
- equals the amount reported as Compensation Actually Paid
Where the following items are taken into account, generally (some less common situations might not be outlined):
- Equity granted in the year is valued as of year-end and shown in its entirety.
- Equity granted in previous years and not vested in the present year is valued as of year-end and shown as the difference between that year-end valuation and the valuation for the end of the prior fiscal year.
- Equity granted in previous years and vested in the present year is valued as of the vest date and shown as the difference between the vest date valuation and the valuation for the end of the prior fiscal year.
This disclosure does not necessarily match the compensation actually received by the executive because the vesting date is used for the final valuation for this disclosure. If, for example, an option vests and has a Black- Scholes fair value of $10 but ultimately expires unexercised, that option provides a $0 value to the executive but will be shown in the Pay Versus Performance table as a $10 value and never updated for the reality of compensation realized.