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E xecutive S hare O ptions : A n E conomic F ramework
Author(s) -
Taylor Stephen L.
Publication year - 1994
Publication title -
australian accounting review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.551
H-Index - 36
eISSN - 1835-2561
pISSN - 1035-6908
DOI - 10.1111/j.1835-2561.1994.tb00154.x
Subject(s) - remuneration , executive compensation , shareholder , compensation (psychology) , accounting , business , executive summary , face (sociological concept) , economics , finance , corporate governance , psychology , social science , sociology , psychoanalysis
This paper provides an overview of the executive compensation debate with special emphasis on the role of executive share options. Widespread criticism of executive pay typically concentrates on pay levels, rather than the composition of executive pay and its determinants. The paper points out that gains from exercising executive share options are not simply rewards for the period in which they are realised and reported. The economic rationale for rewarding executives through share options is reviewed, leading to the conclusion that options are more likely to form a relatively important part of executive remuneration in organisations which face valuable, but relatively risky, investment opportunities. However, because options can aggravate conflicts of interest such as those that arise between shareholders and lenders, they are not a universally efficient form of executive compensation.