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Six Challenges In Designing Equity-Based Pay

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  • Brian J. Hall
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    The past two decades have seen a dramatic increase in the equitybased pay of U.S. corporate executives, an increase that has been driven almost entirely by the explosion of stock option grants. When properly designed, equity-based pay can raise corporate productivity and shareholder value by helping companies attract, motivate, and retain talented managers. But there are good reasons to question whether the current forms of U.S. equity pay are optimal. In many cases, substantial stock and option payoffs to top executives-particularly those who cashed out much of their holdings near the top of the market-appear to have come "at the expense of their shareholders", generating considerable skepticism about not just executive pay practices, but the overall quality of U.S. corporate governance. At the same time, many companies that have experienced sharp stock price declines are now struggling with the problem of retaining employees holding lots of deep-underwater options. 2003 Morgan Stanley.

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

    Volume (Year): 15 (2003)
    Issue (Month): 3 ()
    Pages: 21-33

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    Handle: RePEc:bla:jacrfn:v:15:y:2003:i:3:p:21-33
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