Many firms issue stock options to all employees. We consider three potential economic justifications for this practice: providing incentives to employees, inducing employees to sort, and helping firms retain employees. We gather data on firms' stock option grants to middle managers from three...

Using a detailed data set of employee stock option grants, we compare observed stock-option-based pay plans to hypothetical cash-only or restricted-stock-based plans. We make a variety of assumptions regarding the possible benefits of options relative to cash or stock, and then use observed...

This paper develops a multiperiod agency model to study the use of leading indicator variables in managerial performance measures. In addition to the familiar moral hazard problem, the principal faces the task of motivating a manager to undertake quot;softquot; investments. These investments are...

This study investigates the relationship between the goodwill value enjoyed by Brazilian public companies and their ideas and opinions about value management. Two kinds of research are presented. The first is based on a questionnaire, whereas the other analyzes the quarterly MVA between 1995 and...

In models by Fershtman and Judd (1987) and Sklivas (1987), firms competing in quantities benefit strategically from commiting to managerial incentives that are biased toward revenue maximization. Little empirical evidence has been produced in support of these models, and their assumption that...

In Velez-Pareja, (1999b and 1999c), some difficulties of EVA as an approach for the measurement of economic added value were considered. In those papers, the use of real economic value added based on the real free cash flow was suggested. This means the real cash flow calculated from the...

This paper examines a multiperiod principal-agent model in which a divisional manager has superior information regarding the profitability of an investment project available to his division. The manager also contributes to the periodic operating cash flows of his division through personally...

We analyze and explore option fragility, the notion that option incentives are fragile due to their non-linear payoff structure. Option incentives become weaker as options fall underwater, leading to pressures to reprice options or restore incentives through additional grants of equity-based...

It is often claimed that (i) managers work too hard on operational issues and spend not enough effort on strategic activities and (ii) something can be done about this by introducing nonfinancial performance measures as for instance with a balanced scorecard. We give an explanation for both...

We examine the effect of stock options on managerial incentives to invest. Our chief innovation is a model wherein firm value and executive decisions are endogenous. Numerical solutions to our model show that managerial incentives to invest are multi-dimensional and highly sensitive to option...