Do Chief Audit Executives Receive Stock Options?
The Chief Auditor Executive position grew in popularity in the United States in the late 2000s. For many companies, audit information was viewed as part of general accounting procedures, and businesses relegated most auditing tasks to the Chief Financial Officer. But as auditing rules became more complex and businesses began to use audits as an important method of quality control, the CAE position helped to distribute responsibility. It also raised the question of CAE accountability and bonus programs.
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Stock Options and CAEs
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Stock options are a form of incentive that give employees, including executives, the ability to eventually purchase company stock at a particular price, often a discount to the current market price. This is known as exercising stock, the act of using the option to buy shares and immediately make a profit (ideally). CAEs can and often do receive stock options. There is no specific law against it, and the business may consider it an ideal way of compensation executives, since options are tied to company performance and provide incentive for success.
Issues with Stock Compensation
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While CAEs can receive stock options, there is debate on whether or not they should. CAEs have direct responsibility over business financial practices and ensuring that businesses are meeting current financial standards. This makes it easy for a CAE to hide company insolvency or fraud to boost personal stock gains, or to make large gains betting against company stock while using their job to drastically lower share market value. For these reasons, some companies and analysts support keeping CAEs out of stock option plans.
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Limits
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Federally, there are probably no laws that limit CAE stock options. The use of the word "probably" refers to laws on the books that affect CEOs -- caps on the amount of value CEOs can receive through stock. These rules are made primarily for CEOs and other company leaders, not CAEs. However, as rare as the occurrence might be, it is still the law that CEOs cannot be paid more than $1 million of deductible compensation through stock options.
Company Strategy and Standards
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Company strategies regarding the payment of stock options can vary widely because of the flexibility in regulations. Some plans, for example, provide ownership levels for the CEO equaling five times their base salary, compensation four time the base salary for the President, and three times the salary of any other notable executive officer -- potentially including the CAE. Such standards make it easier for businesses to regulate stock ownership, but may not solve the problem of CAE accountability.
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