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The Incentives Behind the Adoption of Executive Stock Option Plans in U.S. Corporations

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  • Michael S. Long

Abstract

This paper reviews the evolution of executive stock option plans and the parallel tax treatment to compare their relative economic importance. On the incentive side, if the option plans were the most efficient means to provide the appropriate managerial incentives, they would have been adopted and used irrespective of their tax treatment. For the tax argument, if the adoption of these plans followed almost totally from favorable changes in their tax treatment, then an optimal tax strategy argument would be the most likely explanation for their inception. Looking at the specific adoption of plans, the optimal tax strategy appears to be the primary motivator of executive stock option plans.

Suggested Citation

  • Michael S. Long, 1992. "The Incentives Behind the Adoption of Executive Stock Option Plans in U.S. Corporations," Financial Management, Financial Management Association, vol. 21(3), Fall.
    • Handle: RePEc:fma:fmanag:long92
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    Cited by:

    1. Keith D. Harvey & Ronald E. Shrieves, 2001. "Executive Compensation Structure And Corporate Governance Choices," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 495-512, December.
    2. Palmon, Oded & Bar-Yosef, Sasson & Chen, Ren-Raw & Venezia, Itzhak, 2008. "Optimal strike prices of stock options for effort-averse executives," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 229-239, February.
    3. Jan Voßmerbäumer, 2012. "Effizienzwirkungen einer Regulierung von Managergehältern durch das Steuerrecht," Schmalenbach Journal of Business Research, Springer, vol. 64(5), pages 536-561, August.
    4. Rainer Niemann & Dirk Simons, 2002. "Costs, Benefits, and Tax-induced Distortions of Stock Option Plans," CESifo Working Paper Series 815, CESifo.
    5. Seppo Ikaheimo & Anders Kjellman & Jan Holmberg & Sari Jussila, 2004. "Employee stock option plans and stock market reaction: evidence from Finland," The European Journal of Finance, Taylor & Francis Journals, vol. 10(2), pages 105-122.
    6. Stefan Winter, 1998. "Zur Eignung von Aktienoptionsplänen als Motivationsinstrument für Manager," Schmalenbach Journal of Business Research, Springer, vol. 50(12), pages 1120-1142, December.

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