Brian Hall - The Trouble with Executive Stock Options外文电子书籍.pdfVIP

Journal of Economic Perspectives— Volume 17, Number 3—Summer 2003—Pages 49 – 70 The Trouble with Stock Options Brian J. Hall and Kevin J. Murphy he most pronounced change in corporate compensation practices over the past decade is the escalation and recent decline in executive and Temployee stock options. In 1992, rms in the Standard Poor’s 500 granted their employees options worth a total of $11 billion at the time of grant; by 2000, option grants in SP 500 rms increased to $119 billion.1 In 2002, option grants in the SP 500 fell to $71 billion, well below their peak, but still a six-fold increase from a decade earlier. Despite— or perhaps because of—their growing importance, employee stock options have become increasingly controversial. The main argument in favor of stock option plans is that they give executives a greater incentive to act in the interests of shareholders by providing a direct link between realized compensation and company stock price performance. In addi- tion, offering employee stock options in lieu of cash compensation allows compa- nies to attract highly motivated and entrepreneurial employees and also lets companies obtain employment services without (directly) expending cash. Options are typically structured so that only employees who remain with the rm can bene t from them, thus also providing retention incentives. Finally, stock options encour- age executive risk taking, which can mitigate problems with executive risk aversion. But the incentives provided by stock options have also been criticized. The recent accounting scandals at Enron, WorldCom, Global Crossing and other com- 1 Option values are in 2002-constant dollars and are based on Compustat’s ExecuComp data; see Figure 1 below for calculation details. Data are not available for all SP 500