haku: @author Hall, B.J. / yhteensä: 2
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| Tekijä: | Hall, B.J. Knox, T.A. |
| Otsikko: | Underwater options and the dynamics of executive pay-to-performance sensitivities |
| Lehti: | Journal of Accounting Research
2004 : MAY, 42:2, p. 365-412 |
| Asiasana: | Options Pay Executives Management Portfolio management Stock markets Prices Models USA |
| Kieli: | eng |
| Tiivistelmä: | This paper empirically analyzes the dynamics of executives' pay-to-performance sensitivities (hereafter as: p-to-p-s.). Option p-to-p-s. become weaker as options fall underwater, often leading to pressures to reprice options or restore p-to-p-s. in other ways. Based on a detailed data set on executives' portfolios, it is found that the responsiveness of p-to-p-s. to changes in stock price is large. The elasticity of p-to-p-s. with respect to stock price decreases is about 0.7 and is larger for high-option executives and for executives with high percentages of options already underwater. The dominant mechanism through which companies offset declines in option p-to-p-s. is larger option grants following stock price declines. On average, these larger grants restore approximately 40 per cent of the stock-price-induced p-to-p-s. y declines. Option repricings are inconsequential in this regard, despite the attention they have attracted. As to the positive returns, the reverse is found in the paper: higher returns both directly increase p-to-p-s. leading to larger option grants, which raise p-to-p-s. further. Thus, option grants to executives tend to be largest following large stock price increases or large stock price decreases. |
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