C O N T E N T SFOREWORD: A Conversation with Paul Volcker xi
ACKNOWLEDGMENTS xvii
INTRODUCTION xix
PART ONE
THE STOCK OPTION PROBLEM 1
Chapter One
Dimensions of the Problem 3
The Problem with Options 6
The Current Situation 8
Executive Wealth and the Positive Power of Greed 9
Stock Options and Corporate Culture 10
Shareholder Activism 11
The Specter of Government Regulations 13
A Sea Change for Options and Executive Compensation 15
Board Responsibility 15
What Do You Think? 18
Chapter Two
The Sources of the Problem 19
Brief History of Compensation 19
Cultural Phenomena 21
Modern History of Compensation 27
Lessons of the LBO 29
When Executives Become Owners 33
The Role of Boards in Compensation 35
Stock Options for Start-Ups and the Technology Revolution 38
A Skewed Incentive System 40
Chapter Three
The Accounting Story 43
Behind the Scenes of the Accounting Debate 45
FASB’s Renewed Campaign 48
Measuring the Value of Options 51
Determining Fair Value 54
A New Chapter in the Story 58
PART TWO
ELEMENTS OF THE SOLUTION 63
Chapter Four
An Accounting Solution Everyone Can Live With 65
Accounting Rule Implications 67
Special Treatment for Start-Ups? 69
What Do You Think? 75
Bridging the Gulf 76
Chapter Five
Valuing Options 81
Black-Scholes and Beyond 83
The Four Guiding Principles 88
The Purposes of Stock 91
What Do You Think? 92
The Transition to Expensing Options 93
Chapter Six
Providing the Right Questions—and the Right Tools—
for Boards 101
Board Members’ Concerns 102
The Tyranny of Competitive Data 104
Taking a Deeper Look 110
What Do You Think? 114
Chapter Seven
Making Options Performance Based 117
Weighing Performance-Based Options 118
The Purpose of Options 119
Adding Performance Measures 120
Dealing with Underwater Options 122
Other Option Tricks 125
What Do You Think? 127
Bringing Balance to Executive Compensation 127
Chapter Eight
Designing a Balanced Portfolio of Incentives 131
The Risk Decision 131
The Psychology of Risk 132
From Bureaucrats to Innovative Thinkers 133
Taking a Healthy Risk 134
The Balanced Portfolio Approach 136
The Benefit of Stock Ownership 142
A Revolutionary Stock Concept 143
What Do You Think? 144
Building a Balanced Incentive Program 145
Chapter Nine
Building Healthy Employee-Employer Contracts for Public
and Private Companies 149
An Unhealthy Contract 151
Lessons of the New Economy 154
Making Healthier Contracts 155
The Role of Compensation 156
The Role of Long-Term Incentives 161
The Private Company 162
What Do You Think? 164
Valuing People and the Purpose of the Corporation 164
PART THREE
THE PATH TO ACCOUNTABILITY 169
Chapter Ten
Restoring Corporate Integrity 171
Restoring Corporate Integrity: 9 Steps to a Healthier Organization 173
What Do You Think? 180
The Role of the CEO 180
Chapter Eleven
Vision for the Future 185
The Power of the Corporate Executive 186
A Vision for the Future 187
Endnotes 193
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