(64.) (64.) LO.5 & LO.9 (Compensation; ethics; research; writing) Beginning in the 1990s, American firms increasingly adopted the practice of using stock options to compensate mid- to high-level managers. Companies were motivated to use stock options as a large portion of the compensation mix for two reasons. First, accounting rules allowed the expense of the stock options to be charged directly against Retained Earnings rather than against income of the period. Accordingly, reported income would be higher than if the compensation were paid in another form such as cash. Second, boards of direc- tors viewed stock options as aligning manager and stockholder interests better than most other forms of compensation. Research the linkage between reported accounting abuses (e.g., manipulating reported earnings) and the increased use of stock options for managerial compensation. Discuss your findings.

American firms increasingly adopted the practice of using stock options to compensate mid- to high-level managers. Companies were motivated to use stock options as a large portion of the compensation mix for two reasons. First, accounting rules allowed the expense of the stock options to be charged directly against Retained Barnings rather than against income of the period. Accordingly, reported income would be higher than if the compensation were paid in another form such as cash. Second, boards of directors viewed stock options as aligning manager and stockholder interests better than most other forms of compensation. Research the linkage between reported accounting abuses (c.g., manipulating reported earnings) and the increased use of stock options for managerial compensation. Discuss your findings