Question

This case describes the compensation and incentive plans used by a high-technology company for its top-30 managers. The company is unusual in that it has been in business for 17 years, yet has never earned a profit. As such, it can still be viewed as a start-up company, but a mature one. The compensation packages consist of base salary, cash bonuses, and stock options. The case provides opportunities to discuss issues, such as measurements, style of evaluations, and payout leverage, related to, particularly, the bonus and stock option components of these packages, as well as the entire compensation system.

Questions:

1. Assume that you, as an STI employee, were awarded options on 1,000 shares of STI stock today at the current market price.
   1. Without doing a detailed numerical calculation, make your best-guess estimate as to the economic value of this option grant. What factors did you consider in making your estimate?
   2. Would this option grant likely affect any of your behaviors? If so, how?
2. Should the accounting rule change requiring the immediate expensing of the value of stock options granted (which has now happened) cause STI to make any changes to its system? If so, which?
3. Will STI have to make changes to its system when it expands internationally and employs managers in locations such as London and Shanghai? If so, which?

Submit your response in 2-3-pages, Include a cover page and a reference page. When citing sources, please use proper APA citing and reference techniques.

Answer 1