Stock options are both widely used and widely questioned. Research demonstrates that, contrary to stock option boosters, this form of CEO compensation is not a panacea, and there exist situations where issuing them is damaging. Indeed, now that the accounting profession has established that stock options are a real cost to business, either these expenditures should lead to real returns to shareholders or they should not be made. But contrary to across-the-board critics of options, where the potential for CEO opportunism is high, stock options can be a useful tool to align top managers’ interests with those of their bosses: the firm’s shareholders. Thus, rather than being “good for what ails you,” this study suggests that CEO stock options should be “taken only when needed.”
Authors: Michael Greiner, Scott Julian
Source: Harvard Business Review
Subject: Corporate Governance
Click to Add the First »