|
|
|
|
||||
|
||||
Stock Options for Undiversified ExecutivesBrian J. HallNOM Unit Head, Harvard Business School; National Bureau of Economic Research (NBER) Kevin J. MurphyUniversity of Southern California - Marshall School of Business; University of Southern California - Department of Economics; USC Gould School of Law Journal of Accounting & Economics, Vol. 33, No. 2, April 2002 Abstract: We employ a certainty-equivalence framework to analyze the cost, value and pay/performance sensitivity of non-tradable options held by undiversified, risk-averse executives. We derive "Executive Value" lines, the risk-adjusted analogs to Black-Scholes lines. We show that distinguishing between "executive value" and "company cost" provides insight into many issue regarding stock option practice including: executive views about Black-Scholes values; tradeoffs between options, restricted stock and cash; exercise price policies; option repricings; early exercise policies and decisions; and the length of vesting periods. It also leads to reinterpretations of both cross-sectional facts and longitudinal trends in the level of executive compensation.
Keywords: executive compensation, incentives, stock options, risk aversion JEL Classification: J33, J44, G13, G32, M12 Accepted Paper SeriesDate posted: April 30, 2002Suggested CitationContact Information
|
|
||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo1 in 0.344 seconds
