Optimal Executive Compensation: Stock Options or Restricted Stocks

2010 ◽  
Author(s):  
Yan Wu
Keyword(s):  
Executive Compensation ◽  
Stock Options

U.K. Executive Compensation Practices: New Economy versus Old Economy

2004 ◽  
Vol 16 (1) ◽  
pp. 57-92 ◽  
Author(s):  
Konstantinos Stathopoulos ◽  
Susanne Espenlaub ◽  
Martin Walker
Keyword(s):  
Executive Compensation ◽  
Stock Options ◽  
New Economy ◽  
Financial Policy ◽  
Executive Stock Options ◽  
Compensation Package ◽  
Size Growth ◽  
Old Economy ◽  
Almost All

This paper examines the executive compensation practices of listed U.K. retailing companies. We compare “New Economy” retailers (e-commerce/dot-coms) to more traditional retailers operating in the “Old Economy.” We also discriminate between recently floated retailers and their more seasoned counterparts. Using a sample of remuneration contracts for 549 directors in 72 listed U.K. companies in the New and Old Economies, we investigate the structure and level of executive (and nonexecutive) compensation defined as the sum of salary, annual bonus, and the values of executive stock options and long-term incentive plans (LTIPs). We investigate the extent to which the contract features are determined by firm characteristics, economic sector, and governance/ownership factors. In contrast to the U.S., where almost all executive stock options are issued at the money, there is a greater variety of practice in the U.K. with some options being granted substantially in the money. We therefore pay special attention to this U.K. institutional feature by producing a model designed to explain the crosssectional variation in the moneyness of stock options at the date of issue. We also examine the determinants of a number of other contract features. These are: the time to maturity of the executive stock options, the leverage of the compensation package, the ratio of long-term pay relative to short-term pay, and pay performance sensitivity. We find that differences in compensation arrangements can be explained to a significant extent by differences in firm size, growth/growth opportunities, firm financial policy, ownership characteristics, and governance arrangements. We also find some systematic differences between the compensation arrangements of CEOs and other executives.

scholarly journals Tests of two optimal incentive models for executive stock options

2011 ◽  
Vol 9 (1) ◽  
pp. 136-155
Author(s):  
Jean M. Canil ◽  
Bruce A. Rosser
Keyword(s):  
Executive Compensation ◽  
Stock Options ◽  
Abnormal Returns ◽  
Outside Directors ◽  
Data Set ◽  
Stock Volatility ◽  
Unique Data ◽  
Exercise Price ◽  
Grant Size

Using a unique data set, we test theoretical propositions relating to grant size and exercise price in determination of optimal executive compensation. For Hall and Murphy, pay-performance sensitivity does not behave as predicted with respect to CEO risk aversion and diversification, but the latter supports observed grant size while ATM grants exhibit positive abnormal returns as predicted. Consistent with Choe, exercise price is found inversely related to leverage. The unexpected positive relation between grant size and stock volatility is conjectured driven by CEOs’ influencing large grants, which are found associated with weak corporate governance but ameliorated by outside directors.

scholarly journals Accounting For Stock Based Employee Compensation: A Continuing Controversy

2011 ◽  
Vol 3 (4) ◽  
Author(s):  
William Wrege ◽  
Mark Myring ◽  
Joe Schroeder
Keyword(s):  
Executive Compensation ◽  
Stock Options ◽  
Accounting Standards ◽  
Market Value ◽  
Stock Option ◽  
Font Size ◽  
Significant Component ◽  
Employee Compensation ◽  
Compensation Contracts ◽  
History Of

<p class="MsoBlockText" style="text-align: justify; margin: 0in 0.6in 0pt 67.5pt;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">Stock options represent an increasingly significant component of executive compensation. Theoretically, the inclusion of stock options in executive compensation contracts motivates managers to take actions that increase the market value of the firm's stock. Accounting standards regulating the treatment of stock options continue to be controversial. The focus of this paper is to examine the accounting treatment of stock options. We begin by outlining the controversial history of accounting for stock options.<span style="mso-spacerun: yes;">&nbsp; </span>Next, we examine the alternative accounting treatments for stock option.<span style="mso-spacerun: yes;">&nbsp; </span>Finally, we critique the proposed changes to the methods of accounting for stock options.<strong style="mso-bidi-font-weight: normal;"></strong></span></span></p>

Insider Holding Requirements, Stock Options, and Stock Appreciation Rights

2001 ◽  
Vol 16 (3) ◽  
pp. 227-248 ◽  
Author(s):  
Steven Balsam ◽  
Wonsun Paek
Keyword(s):  
Executive Compensation ◽  
Stock Options ◽  
Significant Interaction ◽  
Securities And Exchange Commission ◽  
Employee Stock Options ◽  
Significant Interaction Effect ◽  
Compensation Contracts ◽  
Book Value ◽  
Rule Change ◽  
Compensation Methods

This study examines how a Securities and Exchange Commission rule change affected the design of executive compensation contracts. It shows that a change in insider holding requirements for employee stock options led to a widespread decrease in the use of stock appreciation rights. Further, we find firms that decrease their use of stock appreciation rights compensate employees by increasing their use of employee stock options. The Securities and Exchange Commission rule change provides a unique opportunity to examine the use of compensation methods as it caused firms to examine their policies and make an active decision to modify their practices. Cross-sectionally, we find the likelihood a firm decreases its use of stock appreciation rights positively associated with the magnitude of expense associated with stock appreciation rights, the firm's use of income-increasing accounting methods, leverage, and the ratio of market to book value of assets. We also find a significant interaction effect for the magnitude of expense when interacted with profitability.

The Determinants of Performance Plan Adoption

1995 ◽  
Vol 10 (3) ◽  
pp. 655-676 ◽  
Author(s):  
John A. Brozovsky ◽  
Parvez R. Sopariwala
Keyword(s):  
Executive Compensation ◽  
Agency Costs ◽  
Stock Options ◽  
Matched Pair ◽  
Logit Analysis ◽  
Investment Opportunity ◽  
Opportunity Sets ◽  
Long Term Performance ◽  
Term Performance

Executive compensation schemes are expected to reduce agency costs by aligning the interests of stockholders and managers. We attempt to determine the characteristics of companies that adopt long-term performance plans. Using a matched-pair design, we conduct a multivariate logit analysis that is weighted to take into account the choice-based nature of the sample. Our results suggest that performance plans may have been adopted to complement the inadequate compensation derived from stock options. In addition, we find that performance plans are more likely to be adopted by companies who have smaller investment opportunity sets and have older managers who are underinvesting in R&D expenditures.

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