On the optimality of resetting executive stock options

نویسندگان

  • Viral V. Acharya
  • Rangarajan K. Sundaram
چکیده

The practice of resetting strike prices on underwater executive stock options has drawn criticism for weakening managerial incentives. Our model shows that although the anticipation of resetting can negatively a!ect initial incentives, resetting can still be an important, value-enhancing aspect of compensation contracts, even from an ex-ante standpoint. In fact, we "nd that some resetting is almost always optimal. The relative advantages of resetting diminish with greater ability of managers to in#uence the resetting process, greater relative importance of external factors on stock performance, and lower costs of replacing incumbent managers. ( 2000 Elsevier Science S.A. All rights reserved. JEL classixcation: G32; J33; L14

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On the optimality of resetting executive stock options Viral

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تاریخ انتشار 2000