The effects of stock options on markets

Résumé du document

Steve Jobs, Apple Chief Executive Officer (CEO) recently apologized for his company's past stock-option practices. Indeed, a three-month investigation by Apple's board of directors found that the company had backdated option grants made between 1997 and 2002. A number of companies have been embroiled in the growing controversy over the practice of backdating, or allowing employees to be granted stock options dated from an earlier time, when the trading price of the options was lower.

Extraits

[...] There is an emphasis on relatively short-term stock price performance rather than longer-term measures of economic or market success. The recent Enron and Worldcom cases in the United States are an extreme version of this possibility managers of these firms stated accounting earnings in a way that boosted earnings, whilst at the same time damaging the long-term balance sheet. This type of argument also rests on the assumption that the stock market is myopic, and that managers adopt short-term horizons to meet investor expectations. [...]

[...] There are currently 1400 ‘Sharesave' approved stock option schemes. With certain eligibility constraints, these schemes are required to be open to all employees. Approximately one million employees between 3 and 4 per cent of the employed labour force received grants of options in 2003- In per cent of the largest London-listed firms had a stock option plan; However, it should be noted that the situation remains heterogeneous ; stock option plans being more common in financial services and very uncommon in manufacturing for instance. [...]

[...] As an opening question, do you think stock options system is moral ? [...]

[...] Following these affairs, US and european corporate laws have been hardened. It is notable that key US decision-makers (for instance Harvey Pitt, former Chairman of the Securities and Exchange Commission ; Eliott Spitzer, the current governor of New York) are now explicitly critical of executive stock options. The influential corporate governance body The Conference Board has recently called for stock options to be replaced by stock awards in executive remuneration packages. So, in the following years, maybe ethics will transform stock options scheme. [...]

[...] The major growth in the use of stock options since the late 1980s has been most dramatic in the United States, where by per cent of top american companies granted options to their top executives. What are stock options? Why are companies offering them? Are employees guaranteed a profit just because they have stock options? The following presentation will answer these questions by dealing with all the major aspects of the subject. Firstly by defining stock options characteristics then by analyzing its incidence and effects on employees' behaviours (II). [...]