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The Stock Options Book

19th Edition

by Alison Wright, Alisa J. Baker, and Pam Chernoff

$40.00 for NCEO members; $60.00 for nonmembers

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In recent years, the level of legal, accounting, and regulatory complexity associated with employee stock options has continued to grow. This book, written by attorneys Alisa Baker and Alison Wright, and writer and editor Pam Chernoff, CEP, presents a straightforward, comprehensive overview of both the big-picture issues and the technical details related to designing and implementing stock option plans and employee stock purchase plans. The book also looks at hot issues and provides illustrative exhibits, a glossary, a bibliography, and primary source materials, plus a seminal article by Corey Rosen on plan design.

The 19th edition includes numerous updates and clarifications throughout, including the effects of the tax reform law passed in late 2017 and new rules on accounting for equity compensation granted to nonemployees.

Now with Lay-Flat Spiral Coil Binding for Ease of Study

Like the other NCEO books used in the CEPI program, the new 2019 edition features spiral coil binding so you can lay the pages flat while studying or at the exam.

"Anyone involved with the design or administration of employee stock option programs, from the inexperienced stock plan administrator to the seasoned compensation professional, will appreciate this useful reference tool."
- Tim Sparks, President, Compensia, Inc.

"This book should be on the desk of every stock option professional."
- Robert H. (Buff) Miller, Cooley Godward Kronish LLP

Publication Details

Format: Perfect-bound book, 404 pages
Dimensions: 6 x 9 inches
Edition: 19th (March 2019)
Status: In stock

Contents

Preface
Introduction
Part I: Overview of Stock Options and Related Plans
Chapter 1: The Basics of Stock Options
Chapter 2: Tax Treatment of Nonstatutory Stock Options
Chapter 3: Tax Treatment of Incentive Stock Options
Chapter 4: Plan Design and Administration
Chapter 5: Employee Stock Purchase Plans
Chapter 6: Trends in Equity Compensation: An Overview
Part II: Technical Issues
Chapter 7: Financing the Purchase of Stock Options
Chapter 8: Overview of Securities Law Issues
Chapter 9: Tax Law Compliance Issues
Chapter 10: Basic Accounting Issues
Chapter 11: Tax Treatment of Options on Death and Divorce
Chapter 12: Post-Termination Option Issues
Part III: Current Issues
Chapter 13: Legislative and Regulatory Initiatives Related to Stock Options: History and Status
Chapter 14: Cases Affecting Equity Compensation
Chapter 15: Transferable Options
Chapter 16: Reloads, Evergreens, Repricings, and Exchanges
Appendix 1: Designing a Broad-Based Stock Option Plan
Appendix 2: Primary Sources
Glossary
Bibliography
Index

Excerpts

From Chapter 3, "Tax Treatment of Incentive Stock Options" (footnotes omitted)

Congress created the incentive stock option (ISO) in the Economic Recovery Tax Act of 1981. ISOs were intended to serve as a tax-advantaged investment vehicle for employees, with special benefits if a current employee committed to the investment in his employer for a combined holding period (the "statutory holding period") of (1) at least one year from the date of exercise and (2) at least two years from the date of grant.

The sale of ISO shares held for the statutory holding period is called a "qualifying disposition," under Section 421 of the Code. In a qualifying disposition the entire gain or loss ultimately realized upon the sale is treated as long-term capital gain or loss rather than as ordinary income. In contrast, ISO shares sold before the end of the statutory holding period are said to be sold in a "disqualifying disposition" under Section 421 of the Code. A disqualifying disposition literally disqualifies the option from beneficial ISO tax treatment and instead causes the option to be treated similarly to an NSO. Exhibit 3-1 illustrates the holding period.

As a general rule, if an ISO satisfies all of the statutory requirements outlined below, the tax deferral benefit of ISO treatment remains the same today as it was in 1981. However, the rules governing the tax treatment of ISOs have undergone numerous reviews and revisions between their inception and the most recent revisions, which became effective in 2006.

From Chapter 10, "Basic Accounting Issues"

The standard that required that options be expensed was called Statement of Financial Accounting Standards 123 (revised 2004), or FAS 123(R), until September 2009, when the FASB shifted U.S. generally accepted accounting principles (GAAP) to a codified system that led to the renumbering of all authoritative standards and guidance. Under codification, most of FAS 123(R) became Accounting Standards Codification Topic 718 (ASC 718), while EITF 96-18, relating to awards granted to nonemployees, became part of ASC 505. The numbering change did not affect the basic content of the standard but did consolidate many different interpretations and other accounting pronouncements into a single source. In 2018, the FASB released ASU 2018-07, which brought accounting for awards granted to nonemployees under ASC 718, meaning accounting for nonemployee awards was brought into line with the accounting for employee awards.

At about the same time that the FASB released FAS 123(R), the International Accounting Standards Board (IASB) proposed an accounting standard that was similar, but not identical. The IASB is an independent standards-setting body whose member countries are free to adopt its standards, known as international financial reporting standards (IFRS). The IASB does not have the authority to set accounting standards for individual countries, but its member countries have sought to standardize their accounting requirements to make it easier for investors and others to assess company financials across country lines. The FASB has a stated goal of shifting the U.S. from U.S. GAAP to international accounting standards, but progress has been slow and many issues remain to be addressed. Until such time as adoption by the U.S. takes place, many companies must still grapple with the requirements of IFRS for foreign subsidiaries reporting in countries that have adopted the standards while continuing to use GAAP at the U.S.-company level.

Accounting issues are a concern for public companies or privately held companies that plan on a liquidity event in the future. Other closely held companies must make sure they account for their equity compensation properly, but they often do not consider accounting issues in plan or program design. In 2012, the Financial Accounting Foundation created the Private Company Council, which is reviewing whether privately held companies should be exempt from or subject to modified GAAP requirements in certain areas. Any recommendations made by the board will be subject to approval by the FASB. Equity compensation accounting is included in the areas under review. Companies that qualify as emerging growth companies under the JOBS Act of 2012 can take advantage of an extended transition period whenever FASB issues new rules or modifies existing ones.