Employee Sentiment and Stock Option Compensation

Employee stock option valuation with repricing features

Repricing of an employee stock option refers to the practice of lowering the strike price and /or extending the maturity date of a previously granted employee stock option. Normally, firms reprice after a period of significant stock price decline that renders the employee stock options deeply out-of-the-money. By modeling various repricing mechanisms based on some form of Brownian functional of...

Incentives of stock option based compensation

We introduce explicitly the effort as a choice variable in a continuous time utility maximisation framework of an executive who is partly compensated with stock options. We solve the model in the case where the executive is not allowed to trade in the company’s stock but is able to achieve a partial insurance through trading in a correlated market portfolio. We define the executive’s value of t...

Reload Employee Stock Option Plans: Incentive Alignment or Rent Extraction

Abstract: A reload option awards a new option for every share tendered to exercise an existing option. We use a sample of 242 firms that adopted reload provisions to investigate claims that firms use reload options to encourage early exercise and increase share ownership (incentive alignment) against the competing claim that reloads transfer wealth from shareholders to managers. We find that CE...

Empirical Evidence on the Relation Between Stock Option Compensation and

High powered Incentives and Fraudulent Behavior: Stock based versus Stock Option based Compensation

In this paper shareholders face the trade-off between providing managers with incentives to exert beneficial effort and to engage in costly fraudulent activity. We solve for the optimal compensation package, given that shareholders can either grant (restricted) stock or stock options and given fixed average compensation costs. We show that if the negative effect of fraud on the company’s value ...