The logic behind the use of options as managerial incentive is flawed once you consider what behaviors are actually rewarded. Roger Martin, Dean of the University of Toronto’s business school and one of the co-founders of the strategy consulting firm Monitor, noted the problems of mixing the measuring and rewarding of performance in an expectations market – the stock market – with the measuring and rewarding of performance in the real market of sales, earnings, and productivity. As he noted, in the National Football League, players would never be permitted to profit from beating the point spread – the expectations market – because it would encourage all kinds of nefarious activity. Martin argued that, “stock-based compensation is an incentive to increase expectations, not performance.”
Source: Harvard Business School (HBS) Working Knowledge
Subjects: Compensation, Organizational Behavior
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