Stock Options and Total Payout

Abstract

In this paper, we examine how stock option usage affects total corporate payout. Using fixed-effects panel data estimators on various samples of Execucomp firms from 1993 to 2005, we find the higher the executive stock options, the lower the total payout, ceteris paribus. We also find some evidence that firms increase payouts through repurchases in order to offset EPS dilution that occurs due to usage of executive and non-executive stock options. However, incentives from not having dividend protection for options appear to dominate that of anti-dilution, resulting in lower total payout for firms with higher options usage.

Keywords: Dividends, payout, executive compensation, incentives, stock options, share repurchases, issuances, earnings dilution

JEL Classification: G30, G32, G35, J33, M52