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Accounting Should Follow, Not Drive, Decision Making

Scott Taub | September 3, 2013

I recently came across some evidence that stock option issuance is down significantly, as many companies switch to other forms of compensation, such as restricted stock. This move is consistent with the views of many compensation experts who say restricted stock is a more efficient means of compensation that better aligns management and shareholder interests.

Of course, if restricted stock is a better form of compensation, why did stock options ever become as popular as they did? In my view, the answer is quite clear—until just a few years ago, stock options received very preferential accounting. As we all remember, the accounting for fixed stock options—those whose value was dependent only on stock price and not on the employee's performance or any other factors—used to be no accounting at all, so long as the option was not in-the-money when it was granted...

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