Ending Executive Manipulations of Incentive Compensation
Journal of Corporation Law, Forthcoming
51 Pages Posted: 2 Mar 2016
Date Written: February 1, 2016
In this article, we analyze whether the manipulation of stock options still continues to this day. Our evidence shows that executives continue to employ a variety of manipulative devices to increase their compensation, including backdating, bullet-dodging, and spring- loading. Overall, we find that as a result of these manipulative devices executives are able to increase their compensation by about 6%. We suggest a simple new rule to end all dating games in executive compensation. We propose that all grants of stock options in executive compensation be awarded on a daily pro-rata basis and priced accordingly. This proposal would leave no incentive to game option grant dates or manipulate information flow.
Keywords: incentive compensation, stock options, backdating, securities regulation, corporate governance
JEL Classification: K22, G34, G38, J33, J38
Suggested Citation: Suggested Citation