Why are stock options such a hot topic in the accounting world right now?
In tough economic times, companies must be creative with the way they reward employees, especially when cash is tight. Some companies issue equity awards like stock options as a reward that doesn’t require cash in the short-term. Stock options permit an employee to purchase shares of company stock at a future date and at a predetermined price. Options also serve as an incentive because employees want the company to do well, thereby increasing the value of the stock underlying the options. There are different types of options, each having its own tax ramifications to the employee and the company. Some options allow an employee the choice of paying taxes on the option value now or waiting until the options are exercised. Both the company that grants options and the employee who receives them should consult with tax advisers because the rules can be difficult to follow. What are the financial implications of granting stock options? Although options do not require an immediate cash outlay,
