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Using Sectoral Indexes to Discount the Exercise Price of Employee Stock Options

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  • Majewska Agnieszka

    (University of Szczecin, Faculty of Economics and Management, Institute of Finance, Mickiewicza 64, 71-101 Szczecin, Poland)

Abstract

Employee stock options (ESOs) are an instrument in compensating top management of corporations. In the literature, they are described as a variable component of remuneration of a long-term character (Borkowska, 2012). There are six characteristic elements of the ESO: a grant date, the ESO plan duration, employees entitled to receive options, vesting criteria, a vesting period, and an exercise price. The article refers to the exercise price. The remuneration of employees is determined by the option’s intrinsic value, i.e. the difference between the current stock price and the exercise price. This difference affects the costs incurred by a company in relation with their incentive stock option plan. In this connection, the exercise price of stock options needs to be analysed.

Suggested Citation

  • Majewska Agnieszka, 2016. "Using Sectoral Indexes to Discount the Exercise Price of Employee Stock Options," Folia Oeconomica Stetinensia, Sciendo, vol. 16(1), pages 174-185, December.
    • Handle: RePEc:vrs:foeste:v:16:y:2016:i:1:p:174-185:n:10
    DOI: 10.1515/foli-2016-0010
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    References listed on IDEAS

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    5. Lambert, Richard A. & Lanen, William N. & Larcker, David F., 1989. "Executive Stock Option Plans and Corporate Dividend Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(4), pages 409-425, December.
    6. Kevin J. Murphy & Brian J. Hall, 2000. "Optimal Exercise Prices for Executive Stock Options," American Economic Review, American Economic Association, vol. 90(2), pages 209-214, May.
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    More about this item

    Keywords

    employee stock options; exercise price; equity compensation instruments;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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