1 Pages Posted: 7 Feb 2008 Last revised: 24 Jun 2011
Date Written: June 24, 2011
Despite recent reforms, public company executives can still use inside information to time their stock sales, secretly boosting their pay. They can also still inflate the stock price before selling. Such insider trading and price manipulation imposes large costs on shareholders. This paper suggests that executives' options be cashed out according to a pre-specified, gradual schedule. These hands-off options would substantially reduce the costs associated with current equity arrangements while imposing little burden on executives.
Keywords: Executive compensation, stock options, insider trading, earnings manipulation
JEL Classification: G34, G38, J33, K22, M52
Suggested Citation: Suggested Citation
Fried, Jesse M., Hands-Off Options (June 24, 2011). Vanderbilt Law Review, Vol. 61, pp. 453-474, 2008; UC Berkeley Public Law Research Paper No. 1091068. Available at SSRN: https://ssrn.com/abstract=1091068
By Kevin Murphy