How New Accounting Rules Are Changing the Way CEOs Get Paid

When a well-known compensation consulting firm predicted in early April that new accounting rules wouldn’t have any impact on the use of options as compensation for corporate executives Wharton accounting professor Mary Ellen Carter was ready to disagree. ”That’s just not true ” she says. ”Options will be cut and directors will be switching to restricted stock for executive compensation.” Carter’s response is the result of her research into the role of accounting in the design of CEO equity compensation which is also the title of a new paper written by her Luann J. Lynch from Darden and Wharton accounting professor Irem Tuna. Their study coincides with a ruling implemented this year by the Financial Accounting Standards Board (FASB) that requires all firms to expense the value of employee stock options.

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