Evaluating CEO Equity Based Compensation: The Challenge to value ESOs and its Cost for Investors

Abstract: In this thesis we examine how information about the CEO’s stock-based compensation is disclosed in the annual reports of public Swedish companies and if this information is good enough to evaluate the shareholders cost of these compensation packages. A thorough survey is conducted and a valuation model for employee stock options is described and exemplified with cases. We conclude that the neither the regulatory framework nor market forces compel companies to disclose sufficient information to accurately evaluate the cost of share based compensation in all companies who use it.