This paper examines how an option plan that rewards managers for firm performance relative to some market or industry benchmark should be structured. Relative-performance-based compensation advocates contend that conventional stock options do not adequately discriminate between strong and weak...

This study presents significant factors that affect firms' decision whether to repurchase shares or not. Empirical results show that when the debt ratio is lower, the stock price is seriously underpriced and the firm size is larger, firms tend to buyback their own shares. Regarding employee...

In recent years several companies have offered employees the opportunity to transfer out-of-the-money options to a financial institution. This paper is a clinical study of a high-profile program offered by Microsoft in 2003. This program contained some complexities that likely made it...

In this study, I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Specifically, given that options provide both incentives to increase risk as well as stock price, firms must be cognizant that executives may increasingly...

We provide a two state-variable discrete-time executive option valuation model that allows optimal investment of executive's outside wealth in the riskfree asset and the market portfolio. Our model adopts Rubinstein (1994) rainbow option pricing grid and leads to several improvements over the...

SYNOPSIS: The compensation committee of Level 3 Communications will soon meet to re-evaluate the indexed executive stock option plan used to compensate its top managers and other employees. This review takes place within the context of a troubled telecommunications industry; like many firms in...

We employ a certainty-equivalence framework to analyze the cost, value and pay/performance sensitivity of non-tradable options held by undiversified, risk-averse executives. We derive quot;Executive Valuequot; lines, the risk-adjusted analogs to Black-Scholes lines. We show that distinguishing...

Using a utility-maximization framework, I show that the incentive to increase stock price does not always increase as more options are granted. Keeping the total cost of his compensation fixed, granting more options creates greater incentives to increase stock price only if option wealth does...

This paper extends the investigation of the effect of managerial motives on hedging policy. I utilize a proxy variable that incorporates CEO incentives to increase risk relative to incentives to increase stock price. The variable is directly measured using observed characteristics of CEO...

I analyze the value of a nonstandard call option that allows the holder to purchase an underlying asset at a discount proportional to the asset's market price. Several applications for this type of option exist, including its use in employee compensation contracts. I derive the value of this...