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The design of executive stock options
Author(s) -
Young Leslie,
Quintero Socorro M.
Publication year - 1995
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090160204
Subject(s) - salary , shareholder , incentive , stock options , business , stock price , stock (firearms) , non qualified stock option , corporate title , finance , monetary economics , economics , microeconomics , restricted stock , corporate governance , market economy , stock market , mechanical engineering , paleontology , engineering , biology , horse , series (stratigraphy)
A contract between manager and shareholder comprising salary plus options which are sometimes out of the money implies less risky managerial income but weaker incentives than a contract comprising salary plus stocks (or options which are always in the money) which leaves the manager as well off. Increasing the exercise Price and the salary so that (1) there are some states where the options cannot be exercised but (2) the manager is as well off as before always leads initially to a reduction in effort which outweighs any gains from improved risk sharing, leaving the shareholder worse off.