Stock OPTIONS are the right to purchase shares of a company’s stock at a given price for a set period of time. Individuals can purchase stock options for most major companies through stock exchanges. These stock options give the purchaser the right to sell or purchase 100 shares of stock at any time until the expiration date. “Put” options give the purchaser the right to sell the shares, while “call” options give the purchaser the right to buy the shares at the specified price. In addition to options bought and sold through stock exchanges, many U.S. CORPORATIONs offer senior managers and executives stock options as part of their COMPENSATION AND BENEFITS. Executives are only offered call options, the right to purchase shares at a specified price. An executive might be given the option to purchase 100,000 shares of XYZ stock at the current market price of $20 for the next three years. If the price of XYZ stock raises to $30, the executive can simultaneously purchase the 100,000 shares for $200,000 and sell the shares for $300,000, earning a $100,000 PROFIT. The logic of the practice of offering stock options to executives is that corporate leaders will then have a vested interest in seeing the price of a company’s stock rise. Rising stock prices create CAPITAL GAINs for the company’s owners, the SHAREHOLDERS. If the stock price rises, usually as a result of increased earnings, the executives can execute the stock options and profit. This is referred to as “aligning the interests” of MANAGEMENT and shareholders. Critics note that shareholders are at RISK because they have invested their CAPITAL, and if the price of the stock declines, they lose all part of their INVESTMENT. However, managers with stock options do not really suffer any risk if the company’s stock price declines; although their options may become worthless, they have not invested any capital and so lose nothing. In addition, if the company’s stock price declines, the BOARD OF DIRECTORS will often rewrite executive stock options at lower prices so that executives profit if or when the price of the stock rises. In recent years, partly in response to the Enron bankruptcy, the practice of corporate stock options has received increased scrutiny from both shareholders and financial markets. Corporation managers have been accused of manipulating their companies’ earnings in order to induce short-term price increases at the expense of the companies’ long-term growth and profitability. FEDERAL RESERVE SYSTEM chairman Alan Greenspan and others have also criticized FINANCIAL ACCOUNTING practices related to stock options. As of 2002, companies do not have to include the cost of stock options as an employee expense and, therefore, a deduction against earnings. Critics argue this overstates earnings and transfers INCOME from shareholders to corporate managers. In 2002, STANDARD & POOR’S, the largest financial information source in the United States, announced it would begin including the expense of stock options when calculating companies’ earnings. A New York Times article reported that stockoptions expense at Microsoft Corporation was $3.3 billion in 2001, representing almost one-third of the company’s net income. While financial-accounting rules do not require companies to include the cost of stock options, the profit earned by executives when they execute options is an allowable expense against federal corporate-profit taxes. Differences in financial-accounting and tax-accounting rules allow this anomaly.