A study of the impacts of FRS 102 on the employee stock options granted.

This paper examines the possible effects of the implementation of FRS 102 – Share Based Payment on the future usage of Employee Stock Option (ESO) in Singapore. This incentive scheme has been in existence since the 1990s and has rapidly gained popularity in the last decade. However with the introduction of FRS 102 resulting in the mandatory recognition of ESO in the financial statements, there has been much speculation and suggestions that the usage of ESO will be significantly reduced and will be replaced by other compensation plans. Trends of ESO usage and examination of determinants of the adoption of ESO in Singapore are considered in this study. From our findings using a sample of the largest 40 listed companies on the Singapore Stock Exchange, we cannot conclude that the implementation of FRS 102 will result in any significant impact on the usage of ESO in Singapore. We suggest that firms will likely continue to use ESO as a compensation tool as long as ESO helps to curb the agency costs by aligning manager’s interests with that of the shareholders’ and contribute to the improvement of company performance