Costs, Benefits, And Tax-Induced Distortions Of Stock Option Plans
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.
Volume (Year): 55 (2003)
Issue (Month): 4 (October)
|Contact details of provider:|| Postal: Geschwister-Scholl-Platz 1, 80539 Muenchen|
Phone: 0049 89 2180 2166
Fax: 0049 89 2180 6327
Web page: http://www.sbr-online.com
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sbr:abstra:v:55:y:2003:i:4:321-341. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (sbr)
If references are entirely missing, you can add them using this form.