Author: Vasiliki Athanasakou
Publisher:
ISBN:
Category : Chief executive officers
Languages : en
Pages : 49
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Book Description
We study changes in CEO stock option grants. Unlike most of the literature, we focus on the number rather than the value of options granted. We first provide a detailed description of the main aggregate trends in CEO stock option grants. We then consider the cross-sectional heterogeneity in option-granting activity. We find that CEOs who either overinvest or underinvest subsequently receive fewer stock options as part of their compensation packages. CEOs who hold exercisable deeply-in-the-money options (overconfident CEOs) also receive fewer stock options in subsequent periods. Our findings provide insights into the dynamics of CEO compensation contracts.
Author: Wenli Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
Extant studies provide two additional explanations other than backdating for the abnormal stock returns around CEO option grants - timing of option grants and timing of corporate disclosures. We examine the effect of the Sarbanes-Oxley Act of 2002 (SOX), the stock option backdating scandal, and the new compensation disclosure rules of 2006 on these opportunistic timing behaviors. We find no evidence of opportunistic timing relative to scheduled option grants in the pre-SOX, post-SOX, and post-Backdating-Scandal periods. However, opportunistic timing behaviors for unscheduled option grants exist in the pre-SOX period and persist in the post-SOX period. In addition, we distinguish timing of option grants from timing of corporate disclosures by categorizing quarterly earnings announcements into fixed and variable dates and find the persistence of both types of timing behaviors. We also analyze option grants to independent directors and find no evidence of timing behaviors in all three sample periods. Overall, our results suggest that SOX does not affect opportunistic timing behaviors related to CEO option grants. However, the backdating scandal combined with the subsequent compensation disclosure rules have deterred these behaviors.
Author: Brian J. Hall
Publisher:
ISBN:
Category : Chief executive officers
Languages : en
Pages : 60
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Book Description
Detailed data about stock option contracts are used to measure and analyze the pay to performance incentives of executive stock options. Two main issues are addressed. The first is the pay to performance incentives created by the revaluation of stock option holdings. The findings suggest that if CEO stock holdings were replaced by the same ex ante value of stock options, the pay to performance sensitivity of the median CEO would approximately double. Relative to granting at the money options, a value neutral policy of regularly granting options out of the money (Pe=1.5P) would increase pay to performance sensitivity by approximately 27 percent. The second issue is the pay to performance created by yearly stock option grants. Because most stock option plans are multi year plans, it is shown that different option granting plans have significantly different pay to performance incentives since changes in current stock prices affect the value of future option grants in different ways. Four option granting policies are compared and contrasted. Ranked from highest powered to lowest powered, these policies are: 1) LBO-style up-front options, 2) fixed number policies, 3) fixed value policies and 4) an (unofficial) policy of "back-door repricing." Empirical evidence suggests that (even ignoring the revaluation of past option grants) the pay to performance relationship in practice is stronger for 1) stock option grants relative to salary and bonus, and 2) fixed number plans relative to non-fixed number plans.
Author: Liang Xiao
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
Abstract: In 2003, both the New York Stock Exchange and NASDAQ enacted changes to the requirements regarding listed companies and their Board of Directors composition. The purpose of this study is to examine the effects of those changes, specifically in relation to CEO compensation and compensation committees. Prior to the regulation changes, Yermack [1997] explored the topic of CEOs manipulating the timing of their stock option awards using their influence over their compensation committees. When Yermack originally conducted his study, regulations regarding Board of Directors composition were far more relaxed, and CEOs could sit on their own compensation committees. In my research, I look at the same timing issues Yermack studied, but for companies at a post-regulation change date. Specifically, I calculate the abnormal returns of stock returns of Fortune 500 companies and compare the timing of certain fluctuations in the stock values with the award date of CEO stock options. Furthermore, I consider the differences between the pre-change and post-change values to analyze the control effects the regulation changes had on CEO stock option awards. Through this study I consider whether the NYSE and NASDAQ regulation changes provided controls for the CEOs and prevented further manipulation of the CEO stock option award timing. With corporate governance at the forefront of many discussions due to the current financial crisis, this research should shed some light on what influence upper-level management still has on its own compensation.
Author: Catherine Krueger Weber
Publisher:
ISBN: 9789221094937
Category :
Languages : en
Pages : 102
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Book Description
The significance of stock options as a component of executive compensation has fluctuated dramatically over the past decade. The purpose of this study is to investigate determinants of the effectiveness of stock option grants. These option grants are considered to be effective if they accomplish their intended role of enhancing firm value by inducing risk-taking behavior.
Author: Daniel W. Collins
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This study seeks to provide insights into companies' decisions to issue stock options to CEOs on a scheduled or an unscheduled basis. We first document that unscheduled option awards provide CEOs with greater flexibility to influence the grant date stock price that leads to a lower exercise price of options and a higher accreted value realized at exercise. We then investigate whether the choice between unscheduled and scheduled awards is affected by the degree of CEO influence and the importance of stock options in CEO compensation. Consistent with expectations, we find that firms with greater CEO influence over compensation committees and boards and firms with greater use of stock options in CEO compensation are more likely to issue options to CEOs on an unscheduled basis. We also examine whether compensation committees and boards are effective in limiting CEOs' option timing manipulation for unscheduled awards and information timing manipulation for scheduled option awards. We find that, for firms that issue unscheduled options, boards that are less independent of management and that receive a greater proportion of director compensation from stock options allow greater management opportunism with respect to the timing of option awards. In contrast, for firms that issue scheduled options, we find no significant impact of board independence and director option compensation on the extent of management opportunism with respect to the timing of information releases around option awards.
Author: Donald P. Delves
Publisher: McGraw Hill Professional
ISBN: 0071436324
Category : Business & Economics
Languages : en
Pages : 226
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Book Description
"As a former CEO and independent director of several corporations, I find Don Delves' discussion of executive compensation -- including detailed and insightful reviews of the issues involving stock options -- to be exceedingly instructive. This is a book that members of compensation committees, indeed all corporate board members should read." -B. Kenneth West, Former CEO, Harris Trust and Savings Bank and member of several corporate boards. Guidelines for curbing today's stock option abuses, and making "payment for performance" the new imperative Stock options account for up to 90 percent of the average CEO's compensation--despite a falling stock market and often plunging corporate earnings. Stock Options and the New Rules of Corporate Accountability examines this hot-button issue, proposing new methodologies and techniques for better aligning stock options, executive compensation, performance rewards, and accounting, and making sense of what has become today's most controversial form of compensation. Executive compensation authority Don Delves explains how high-profile corporations like GE and Coca-Cola have opted to expense stock options and have adjusted their policies to prevent options from becoming disincentive tools, and he shows others how to follow suit. In addition, Delves gives decision makers the knowledge they need to: Increase accountability by treating stock options as expenses Balance options with other incentives Create healthier contracts between employers and employees
Author: Benjamin Hermalin
Publisher: Elsevier
ISBN: 0444635408
Category : Business & Economics
Languages : en
Pages : 762
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Book Description
The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. Concentrates on underlying principles that change little, even as the empirical literature moves on Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field’s substantive findings, all of which help point the way forward
Author: Lucian A. Bebchuk
Publisher: Harvard University Press
ISBN: 9780674020634
Category : Business & Economics
Languages : en
Pages : 308
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Book Description
The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.
Author: Jean Canil
Publisher:
ISBN:
Category :
Languages : en
Pages : 26
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Book Description
Schaefer (1998) and Baker and Hall (2004) posit a firm size effect for regular executive compensation but not specifically for executive stock option grants. They propose an inverse relation between pay-performance sensitivity and firm size along with a positive relation between the marginal productivity of executive effort and firm size. The product of pay-performance sensitivity and executive productivity is 'incentive strength'. They find a weakly positive association between incentive strength and firm size. We substitute Hall and Murphy's (2002) pay-performance sensitivity metric to detect a firm size effect in CEO stock option grants. After adjusting for small-firm risk aversion and private diversification 'clienteles', we document evidence of a residual small-firm effect impacting on incentive strength principally through grant size. Given lower small-firm deltas, grant size appears to have been increased by compensation committees to ensure small-firm CEOs are not under-compensated relative to their large-firm counterparts. We also find that firm complexity influences pay-performance sensitivity as well, but not labor productivity (proxying for CEO productivity). No evidence is found that firm smallness and complexity impact on labor productivity. However, we empirically confirm a negative relation between pay-performance sensitivity and firm smallness and, by implication, firm complexity.
