The discussion on value-based performance measures is centered around the concept of residual income. The main property of residual income is its connection to capital budgeting and the net-present-value-rule. This property is, however, not sufficient to guarantee strong goal congruence between...

We introduce a model that captures the main properties that characterize employee stock options (ESO), in particular, the likelihood of early voluntary exercise and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which...

Using data from FTSE 350 firms, we examine factors influencing explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide exploratory evidence on whether the use or characteristics of RPE are associated with efforts to improve incentives by removing...

Using data from FTSE 350 firms, we examine the factors influencing the explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide evidence on the use of RPE either to improve incentives by removing common risk or by linking greater vesting...

We gather data from 77 current mid-level managers and 111 future entry-level managers, to investigate how they value stock options and restricted stock. We refer to our current and future manager groups collectively as quot;managers.quot; We supplement our manager data with a dozen field...

This paper determines the cost of employee stock options (ESOs) to shareholders. I present a pricing method that seeks to replicate the empirics of exercise and cancellation as good as possible. In a first step, an intensity-based pricing model of El Karoui and Martellini is adapted to the needs...

This study contributes to the valuation of employee stock options (ESO) in two ways: First, a new pricing model is presented, admitting a major part of calculations to be solved in closed form. Designed with a focus on good replication of empirics, the model fits with publicly observable...

We derive a simple formula for the cost of the ESO to the firm at the grant date under the assumption that the executive has a constant market-to-strike multiple. The market-to-strike multiple is defined as the ratio of the market price on exercise to the strike price of the ESO. The expected...

According to the Revised FAS Statement No. 123 issued on December 16, 2004, (FAS123R) the accounting treatment of employee stock options (ESOs) for U.S. companies will be radically different in the near future. Although, FAS 123R does not specify a particular valuation technique as preferable,...

This paper examines the issues and controversies over the question of whether executive stock options should be expensed and, if so, how option values should be determined. It identifies and clarifies the key questions and surveys and synthesizes the academic and trade literature. Illustrations...