The Trouble with Stock Options
AbstractThe trouble with options is that too many options are granted to too many people. Most options are granted below the top-executive level, and options are often an inefficient way to attract, retain and motivate executives and (especially) lower-level employees. Why, then, are options so prevalent? We discuss several explanations including changes in corporate governance, reporting requirements, taxes, the bull market and managerial rent-seeking. We also offer an alternative hypothesis that we believe explains the over-use of options and several apparent puzzles: boards and managers falsely perceive stock options to be inexpensive because of accounting and cash-flow considerations.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9784.
Date of creation: Jun 2003
Date of revision:
Publication status: published as Hall, Brian J. and Kevin J. Murphy. "The Trouble With Stock Options," Journal of Economic Perspectives, 2003, v17(3,Summer), 49-70.
Note: CF LS PE
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Find related papers by JEL classification:
- J0 - Labor and Demographic Economics - - General
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
This paper has been announced in the following NEP Reports:
- NEP-FIN-2003-07-10 (Finance)
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- Lucian Arye Bebchuk & Jesse M. Fried, 2003.
"Executive Compensation as an Agency Problem,"
NBER Working Papers
9813, National Bureau of Economic Research, Inc.
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- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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