search query: @indexterm PAY INCENTIVES / total: 165
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| Author: | Tian, Y.S. |
| Title: | Too much of a good incentive? The case of executive stock options |
| Journal: | Journal of Banking and Finance
2004 : JUN, VOL. 28:6, p. 1225-1245 |
| Index terms: | Management Executives Stock options Pay incentives Case studies Models USA |
| Language: | eng |
| Abstract: | The paper shows, using a utility-maximization framework, that the incentive (hereafter as: inc. / incs.) to increase stock price does not always increase as more options (hereafter as: opt. / opts.) are granted. Keeping the total cost of his compensation fixed, granting more opts. creates greater incs. to increase stock price only if opt. wealth does not exceed a certain fraction of total wealth. Beyond this critical level, granting more opts. actually reduces inc. effects and becomes counter-productive. In addition, stock opts. also create inc. to reduce (increase) idiosyncratic (systematic) risk. These inc. effects are sensitive to the choice of exercise price. |
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