3. (10 points) At the recent shareholders' meeting in June 2023, the CEO of a small bank proposed a plan to offer each of its employees 250 incentive options for Class A common stock. The key provisions of the plan are that employees must exercise the options between January 2027 and December 2028, and if an employee terminates their employment with the bank (or is terminated) before January 2027, the options are no longer exercisable. As CEO, how would you defend the stock option plan to the shareholders? Please give an explanation. (Note: A stock option is a form of employee compensation where the firm gives the employee an option to purchase equity shares in the company at an agreed upon price, which is usually the market price of the stock on the day the option is granted. These shares would be bought from the company and not on the open market. After the date when the company states that the option can be exercised, which is some time in the future, any time the market value of the shares is greater than the price at which the company agreed to sell the shares to the employee, the employee can buy the shares from the company at the agreed upon price, sell them on the stock exchange at the market price and earn a profit on the difference. The higher the market price at the time of exercising the option, the greater will be the profit that the employee will earn).
3. (10 points) At the recent shareholders' meeting in June 2023, the CEO of a small bank proposed a plan to offer each of its employees 250 incentive options for Class A common stock. The key provisions of the plan are that employees must exercise the options between January 2027 and December 2028, and if an employee terminates their employment with the bank (or is terminated) before January 2027, the options are no longer exercisable. As CEO, how would you defend the stock option plan to the shareholders? Please give an explanation. (Note: A stock option is a form of employee compensation where the firm gives the employee an option to purchase equity shares in the company at an agreed upon price, which is usually the market price of the stock on the day the option is granted. These shares would be bought from the company and not on the open market. After the date when the company states that the option can be exercised, which is some time in the future, any time the market value of the shares is greater than the price at which the company agreed to sell the shares to the employee, the employee can buy the shares from the company at the agreed upon price, sell them on the stock exchange at the market price and earn a profit on the difference. The higher the market price at the time of exercising the option, the greater will be the profit that the employee will earn).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. (10 points) At the recent shareholders' meeting in June 2023, the CEO of a small bank
proposed a plan to offer each of its employees 250 incentive options for Class A common stock.
The key provisions of the plan are that employees must exercise the options between January
2027 and December 2028, and if an employee terminates their employment with the bank (or is
terminated) before January 2027, the options are no longer exercisable. As CEO, how would you
defend the stock option plan to the shareholders? Please give an explanation.
(Note: A stock option is a form of employee compensation where the firm gives the employee an
option to purchase equity shares in the company at an agreed upon price, which is usually the
market price of the stock on the day the option is granted. These shares would be bought from
the company and not on the open market. After the date when the company states that the option
can be exercised, which is some time in the future, any time the market value of the shares is
greater than the price at which the company agreed to sell the shares to the employee, the
employee can buy the shares from the company at the agreed upon price, sell them on the stock
exchange at the market price and earn a profit on the difference. The higher the market price at
the time of exercising the option, the greater will be the profit that the employee will earn).
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