Financial Accounting Blog

Sunday, June 06, 2004

Executive Compensation Changes. In this report, says that executives are compensated with an abundant amount of stock options which may be the wrong incentive in the interest of shareholders. Furthermore, their measurable business objectives are centered around their impact on the stock itself. This creates an issue and can result in what many people call "cooking the books" in hopes that their creative adjustments to the financial statements will reduce the risk of investing in their company, resulting in an increase in share price.
Stock-option compensation has been in the crosshairs of shareholder activists and other critics. They contend that options provide too much incentive for executives to focus on the share price - and, perhaps, to cook the books.

Last year the compensation committees of corporate boards seemed to take that criticism to heart. In a reversal of a strong recent trend, the pay packages of many top-earning CFOs no longer sported whopping options components.