switchingjobswillbegreatestwhentheopportunitytodoso
ishighest.Foramoreextensivediscussionofthismotiveand
someempiricalevidence,seeP.OyersandS.Schaefer,“Why
DoSome FirmsGiveStockOptionstoAllEmployees?An
Empirical ExaminationofAlternativeTheories,” Journal of
Financial Economics75 (2004): 99–132.
3 B. J. Hall and K. J. Murphy, “The Trouble with Stock
Options,” workingpaper,NBER,2003.Theynote,though,
that the CEO and top management’s share of options has
droppedfromabout 15 percentintheearly1990stolessthan
10 percent in 2002.
4 N.BergmanandD.Jenter,“EmployeeSentimentandStock
Option Compensation,” working paper, MIT, 2003. They
maketheargumentthatoveroptimisticemployeesovervalue
option grants and that firms take advantage of this
overoptimism.
5 Theruledoesrequirethattheoptionvaluebeafunctionof
six inputs: the current stock price, the strike price, the
expected lifeof the option(reflecting option maturityand
vesting likelihood), the variance in the stock price, the
riskless rate, and expected dividends.
6 Thisforfeitureratecanreflecthistoricalpatternsofexercise
andforfeiture.Assumingahigherforfeitureratewillreduce
the value of the options.
7 The original version of this rule required accelerated
write-offsofemployeeoptionexpenses,butthefinalversion
allowsfirmstochoosebetweenthesimplerstraight-lineand
accelerated write-offs.