Abstract

The article discusses methods of delivering equity to executives, and will explore how appropriate designs can be developed which consider ownership structure, current equity values, size of the equity interest to be conveyed, corporate financial needs, executive financial circumstances and needs, and regulations regarding accounting, reporting, and tax treatment of ownership compensation programs. Qualified options entitle the executive to a future purchase of company stock at today's market price. Nonqualified options provide the executive recipient with the ability to hold a right for future purchase of shares at a predefined fixed price without incurring any immediate expense for holding that right. Because of their direct profit-and-loss deductibility as a compensation expense, nonqualifieds are very cost efficient to the granting corporation. Performance shares are best suited to the established corporate setting where major ownership positions have already been established. They augment existing ownership and provide current incentives for goal achievement.