Are Stock Options the Managers' Blessing? Stock Option Compensation and Institutional Controls

Zurich IEER Working Paper No. 61

32 Pages Posted: 10 Dec 2000

See all articles by Matthias Benz

Matthias Benz

University of Zurich - Department of Economics

Marcel Kucher

University of Zurich - Department of Economics

Alois Stutzer

University of Basel - Faculty of Business and Economics; IZA Institute of Labor Economics

Date Written: April 2001

Abstract

Stock option grants to top managers have largely contributed to the dramatic increase in US executive pay in recent years. In this paper it is argued that stock options, compared to other forms of compensation, have created strong incentives for managers to engage in lobbying activities for higher compensation. The empirical results presented for the S&P 500 firms and the years from 1992 to 1997 show that the relative success of such skimming activities is shaped by institutional controls. Stock option grants are substantially lower when control by the board of directors and the shareholders is higher, and competition on the product market of a firm is stronger.

Keywords: executive compensation, stock options

JEL Classification: G3, J3, L2, M1

Suggested Citation

Benz, Matthias and Kucher, Marcel and Stutzer, Alois, Are Stock Options the Managers' Blessing? Stock Option Compensation and Institutional Controls (April 2001). Zurich IEER Working Paper No. 61. Available at SSRN: https://ssrn.com/abstract=251009 or http://dx.doi.org/10.2139/ssrn.251009

Matthias Benz (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

Marcel Kucher

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland
+41 1 634 37 32 (Phone)
+41 1 634 49 07 (Fax)

Alois Stutzer

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 267 3361 (Phone)
0041 61 267 3340 (Fax)

HOME PAGE: http://www.wwz.unibas.ch/stutzer/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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