The Value and Incentive Effects of Nontraditional Executive Stock Option Plans
Posted: 4 Jan 2001
We examine the value and incentive effects of six nontraditional executive stock options: premium options,performance-vested options, repriceable options, purchased options, reload options, and indexed options. With reasonable parameter values, four options have lower value than a traditional option when granted, and large differences in value are evident across the types. Holding option value constant, five options create stronger incentives than traditional options to increase stock price, five create stronger incentives to increase risk, and three create stronger incentives to reduce dividend yield. Changing various option-specific parameters can produce large changes in incentive strengths.
Keywords: Executive stock options, Executive compensation, Option valuation, Incentives
JEL Classification: J33, G13
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