The Value and Incentive Effects of Nontraditional Executive Stock Option Plans

Posted: 4 Jan 2001

See all articles by Yisong S. Tian

Yisong S. Tian

York University - Schulich School of Business

Shane A. Johnson

Texas A&M University - Department of Finance

Abstract

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

Suggested Citation

Tian, Yisong Sam and Johnson, Shane A., The Value and Incentive Effects of Nontraditional Executive Stock Option Plans. Journal of Financial Economics, Vol. 57, No. 1, July 2000. Available at SSRN: https://ssrn.com/abstract=251510

Yisong Sam Tian

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100, ext 77943 (Phone)
416-736-5687 (Fax)

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

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