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Employee stock options di¤er substantially from traded options. Most expire within 90 days of the termination of employment, and are forfeited if the employee leaves before vesting. The major accounting standards boards are in agreement that options should be expensed, but companies have legitimate complaints about the proposed methods. For example, the proposals create accounting incentives for ...rms to lay o¤ employees who hold unvested and nearly worthless options. We propose a simpledoi:10.1257/089533005775196714 fatcat:4wx5d7wzp5afjot26yvqaqg5ni