Option Compensation and Industry Competition

Review of Finance, 2008

EFA 2003 Annual Conference Paper

39 Pages Posted: 12 May 2003 Last revised: 21 Mar 2008

See all articles by Neal Stoughton

Neal Stoughton

Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)

Kit Pong Wong

University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Abstract

Compensation policy has become one of the most important ingredients of corporate governance. In this paper we take a new look at the issue, by contrasting the use of options with that of stock. We do this by integrating the repricing or resetting aspect of options with that of industrial structure. We show that industry competition may play an important role in dictating which form of compensation is optimal. When aggressive competition for key professional staff is an issue, the flexibility of options may actually become a disadvantage and therefore pure stock compensation may survive as an equilibrium. Thus compensation trends may be partly explained by trends in the nature of the competitive environment.

Keywords: Compensation, options, stock, product markets, competition, employees

JEL Classification: G30, D21, D43

Suggested Citation

Stoughton, Neal M. and Wong, Keith Kit Pong, Option Compensation and Industry Competition. Review of Finance, 2008, EFA 2003 Annual Conference Paper, Available at SSRN: https://ssrn.com/abstract=385621 or http://dx.doi.org/10.2139/ssrn.385621

Neal M. Stoughton (Contact Author)

Vienna University of Economics and Business ( email )

Austria

Vienna Graduate School of Finance (VGSF) ( email )

Austria

Keith Kit Pong Wong

University of Hong Kong ( email )

Faculty of Business and Economics
University of Hong Kong
Hong Kong, Nil Nil
Hong Kong
(852) 2859-1044 (Phone)
(852) 2548-1152 (Fax)

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