Stock Options and the New Rules of Corporate Accountability

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McGraw Hill Professional, Sep 22, 2003 - Business & Economics - 288 pages

"As a former CEO and independent director of several corporations, I find Don Delves' discussion of executive compensation -- including detailed and insightful reviews of the issues involving stock options -- to be exceedingly instructive. This is a book that members of compensation committees, indeed all corporate board members should read." -B. Kenneth West, Former CEO, Harris Trust and Savings Bank and member of several corporate boards.

Guidelines for curbing today's stock option abuses, and making "payment for performance" the new imperative

Stock options account for up to 90 percent of the average CEO's compensation--despite a falling stock market and often plunging corporate earnings. Stock Options and the New Rules of Corporate Accountability examines this hot-button issue, proposing new methodologies and techniques for better aligning stock options, executive compensation, performance rewards, and accounting, and making sense of what has become today's most controversial form of compensation.

Executive compensation authority Don Delves explains how high-profile corporations like GE and Coca-Cola have opted to expense stock options and have adjusted their policies to prevent options from becoming disincentive tools, and he shows others how to follow suit. In addition, Delves gives decision makers the knowledge they need to:

  • Increase accountability by treating stock options as expenses
  • Balance options with other incentives
  • Create healthier contracts between employers and employees

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PART TWO Elements of the Solution
PART THREE The Path to Accountability

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Page 24 - The capitalistic economy of the present day is an immense cosmos into which the individual is born, and which presents itself to him, at least as an individual, as an unalterable order of things in which he must live. It forces the individual, in so far as he is involved in the system of market relationships, to conform to capitalistic rules of action.
Page 113 - The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore,...
Page 24 - ... relationships, to conform to capitalistic rules of action. The manufacturer who in the long run acts counter to these norms, will just as inevitably be eliminated from the economic scene as the worker who cannot or will not adapt himself to them will be thrown into the streets without a job.
Page 50 - The Board chose a disclosure-based solution for stock-based employee compensation to bring closure to the divisive debate on this issue — not because it believes that solution is the best way to improve financial accounting and reporting?* In 2002, in Congressional testimony before the Committee on Banking, Housing and Urban Affairs, Dennis R.
Page 12 - Too many corporate executives sought ways to "harvest" some of those stock market gains. As a result, the highly desirable spread of shareholding and options among business managers perversely created incentives to artificially inflate reported earnings in order to keep stock prices high and rising. This outcome suggests that the options were poorly structured, and, consequently, they failed to properly align the longterm interests of shareholders and managers, the paradigm so essential for effective...
Page 15 - To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.
Page 27 - premier institutions - the crown jewels - in their industries, widely admired by their peers and having a long track record of making a significant impact on the world around them ... visionary companies prosper over long periods of time, through multiple product life cycles and multiple generations of active leaders
Page 195 - Commission on Public Trust and Private Enterprise, Findings and Recommendations, Part 1: Executive Compensation" (September 17, 2002), page 10.
Page 12 - At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community.

About the author (2003)

Donald Delves, C.P.A. is the founder and president of consulting firm The Delves Group. Previously a senior consultant at Sibson and Company and an executive compensation consultant with Towers Perrin, he has been featured in Strategic Finance, The Stock Plan Advisor, Crain's Chicago Business, and other publications.

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