Background Note | HBS Case Collection | September 1992 (Revised September 2010)

Executive Stock Options

by Henry B. Reiling

Abstract

After a brief comment on the practical problems associated with taxing options and the possible occasions on which taxation might occur, the note describes the current policy imbedded in the Internal Revenue Code and gives examples of this policy in operation. The examples compare the taxation of warrants (to establish a base case), tax favored Incentive Stock Options and options granted to an executive that have not qualified for favorable tax treatment. Puts the student in the position to assess how significant the tax benefits are.

Keywords: Stock Options; Policy; Taxation; Executive Compensation; Employee Stock Ownership Plan;

Citation:

Reiling, Henry B. "Executive Stock Options." Harvard Business School Background Note 293-054, September 1992. (Revised September 2010.)