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in this video were going to describe the accounting and reporting for stock compensation plans in particular were going to examine the accounting for stock options and stock options give employees the option to purchase common stock at a given price referred to as the exercise price over some extended period of time stock options are effective means of compensating employees because they link pay to performance and motivate employees to the extent that we can motivate employees to act in the best interest of the firm the companys stock price will increase as will the employees compensation so its an effective way to align employee and shareholder interests stock options can be an important tool for retaining executives and recruiting new talent many a software engineer has wandered off to silicon valley hoping to strike it rich with stock options in the latest tech firm think about the employees that got in early with companies like amazon zoom facebook or instagram stock options