The Implications Of Expensing Stock Options On Corporate Governance

Abstract

This paper examines the roots of the abuse of stock options, finding it centered on a principal/agent problem that arises when employee stock options are not required to be expensed in the income statement.  The failure of corporate governance, including the proper oversight of executive compensation, and the failure of FASB to require expensing stock options, leads to a management-centric organization whose motives diverge from the interests of shareholders.