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The Design Of Multi-Year Stock Option Plans

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  • Brian J. Hall
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    Abstract

    Despite the explosion in the corporate use of stock options, the incentives created by stock options are not well understood by either the boards who grant them or the executives who are meant to be motivated by them. A major source of confusion stems from the corporate practice of using multi-year stock option plans. Such multi-year grants create subtle, potentially important links between current performance and future grants that can significantly dilute incentives for better performance. 1999 Morgan Stanley.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1745-6622.1999.tb00011.x
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    Bibliographic Info

    Article provided by Morgan Stanley in its journal Journal of Applied Corporate Finance.

    Volume (Year): 12 (1999)
    Issue (Month): 2 ()
    Pages: 97-106

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    Handle: RePEc:bla:jacrfn:v:12:y:1999:i:2:p:97-106

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=1078-1196

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    Cited by:
    1. Perry, Tod & Zenner, Marc, 2001. "Pay for performance? Government regulation and the structure of compensation contracts," Journal of Financial Economics, Elsevier, vol. 62(3), pages 453-488, December.
    2. Garvey, Gerald T. & Milbourn, Todd T., 2006. "Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad," Journal of Financial Economics, Elsevier, vol. 82(1), pages 197-225, October.
    3. Brian J. Hall, 2003. "Six Challenges in Designing Equity-Based Pay," NBER Working Papers 9887, National Bureau of Economic Research, Inc.
    4. Francis, Bill & Hasan, Iftekhar & Sharma, Zenu, 2011. "Incentives and innovation: evidence from CEO compensation contracts," Research Discussion Papers 17/2011, Bank of Finland.
    5. Farrell, Kathleen A. & Friesen, Geoffrey C. & Hersch, Philip L., 2008. "How do firms adjust director compensation?," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 153-162, April.
    6. Rainer Niemann & Dirk Simons, 2002. "Costs, Benefits, and Tax-induced Distortions of Stock Option Plans," CESifo Working Paper Series 815, CESifo Group Munich.
    7. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.

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