7. tax bite is less than expected. If the shares have increased in value, the employee is delighted to pay the higher tax. The income tax payments can be met either by selling the shares or preferably by paying part of the incentive compensation in cash. The retention of stock by employees under restricted stock plans tends to be higher than under stock option plans where it is more of a problem for the employee to fund the purchase of the shares and the taxes due. The restrictions tend to tie the employee to the company because typically he will forfeit all or part of his restricted shares if he leaves the company. An argument against restricted stock is that it fails to provide the same leverage and opportunity for capital accumulation as does the successful stock option. Incentive plans that rely too heavily on fixed formulae are dangerous and can produce distortions, particularly when the dollar is changing rapidly in value. Shareholder approval of such plans may give comfort and protection to the directors but directors should have the courage to assume the responsibility for protecting the shareholders' and the employees' interests by avoiding such plans. Plans of this type are justified, if at all, where the number of people in the bonus pool is so large that individual consideration is impractical. Wherever possible it is far better to restrict the number of participants and to retain at the board level maximum discretion and flexibility in