What is so dumb about it? If I earn, say $1,000 cash, I have to pay income tax on it, pure and simple. If I decide to invest this $1,000 in stocks and earn additional $500, I am taxed on that $500 when I "realize" that earning by selling my stock. In the same manner, the CEO would pay for the value of the option at the time it was received, plus tax on any capital gains this stock would yield in the future. Compensation and speculation are two different animals and should be taxed as such, no?
Wojtek