Ethics of Stock Option - Case Study Example

Ethics of stock optionIntroductionStocks options were designed for the purpose of paying or granting reward for performance through allowing employees purchase a number of the common shares of the company. It was for the good intent but led to emergence of ethical issues through mischievous ways of backdating and re-pricing of the stocks option. According to Kantian, it is possible to develop moral system using reason and this could be a great basis for controlling the ethical issues that a rises[sam02].

Body The share based payment and stock options were compensation expense based on the fair value for both the company and the beneficiaries based on the stock market price on the grant date. Stock option was based on the company shares thus resulted to increased urge to the executives to raise the stock’s price. Some of the executives chose foul ways of raising the stock prices such manipulating of companies financial statements, firing of employees and closing of plants to increase the company income.

The executives thus looked for ways through which they could engineer the stock prices for their own benefits. The grant date for stock option were also chosen by the executives which meant they could do it in a way that favours them; for instance when the market share price was lowest to benefit the recipients. Stock price manipulation also resulted to increased salary gap between the highly paid employees and the lowly paid employee in the company. During market down turn due to stock price manipulation, investors suffered as a result greedy character of the executives while the executives were being awarded for the failures of the company.[Rai07]. All this ethical issues of stock option handling needed to be looked upon for moral reason.

Due to the many short comings of the old ways through which stock options were handled, new changes were made that could reduce the unethical issues that a rose and enhancing of doing the right things for the right reasons. The changes included new laws of reporting stock option grants within two days of issue, “synthetic” re-pricing and the indexing stock options. The changes had great impact on the ethical issues as they enforced rational stock option awarding.[Rai07] Manipulation of the stock prices reduced and the employee received what they deserved.

Even so new ethical issues arose from the changes as the adoption of the Spring- Loading and Bullet- Dodging by some companies which benefited some of the participants of the company which was unethical.Conclusion Stock option handling in the past raised some ethical issues. These were reduced by the resent changes even though more ethical issues a rose. It’s thus paramount for more moral laws to be put in place to control the ethical issues in the stock option control.Referencessam02: , (kerstein, 2002), Rai07: , (Raiborn, et al., 2007),