Hands-Off Options

1 Pages Posted: 7 Feb 2008 Last revised: 24 Jun 2011

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: June 24, 2011

Abstract

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

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

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)

HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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