Costs, Benefits, And Tax-Induced Distortions Of Stock Option Plans
Abstract
In recent years stock option plans (SOPs) have become an important component of managerial remuneration in most industrialized countries. Commonly accepted corporate as well as individual taxes have a major impact on the costs of an SOP. In contrast, the influence of taxes on the benefits of an SOP remains widely unperceived. This article deals with both cost and benefit aspects simultaneously by integrating taxation into a principalagent model in which the agent is compensated in options. By deriving the optimal quantity of options to be granted and the optimal exercise price to be set, we can quantify the resulting profits for managers and shareholders. By comparing the results in a tax-free world to results that take into account different levels of taxation, we can identify several tax-induced incentive distortions.Download Info
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Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.
Volume (Year): 55 (2003)
Issue (Month): 4 (October)
Pages: 321–341
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Related research
Keywords: Managerial Renumeration; Principal-Agent; Stock Options; Taxation.;Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
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Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Ewert, Ralf & Niemann, Reiner, 2012. "Steuern in Agency-Modellen: Mehrperioden- und Multi-Task-Strukturen," arqus Discussion Papers in Quantitative Tax Research 135, arqus - Arbeitskreis Quantitative Steuerlehre.
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