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Optimal executive compensation: Stock options or restricted stocks

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  • Wu, Yan Wendy
Abstract
This paper develops an agency model to analyze the optimality of executive stock option compensation in the presence of information manipulation. The analyses show that although information manipulation is positively related to the size of option compensation, the relative size of manipulation-to-effort does not depend on the size of option compensation. Furthermore, an optimal executive compensation package includes stock options instead of restricted stocks under most circumstances. Testable predictions on the relationship between optimal option exercise price and exogenous model parameters are derived.

Suggested Citation

  • Wu, Yan Wendy, 2011. "Optimal executive compensation: Stock options or restricted stocks," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 633-644, October.
    • Handle: RePEc:eee:reveco:v:20:y:2011:i:4:p:633-644
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    References listed on IDEAS

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    Cited by:

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    3. Zhu, Chunhui & Zhang, Teng & Li, Shaoyu, 2021. "Why more restricted stocks, less stock options?--An explanation based on the preference of regulators of China?," Journal of Asian Economics, Elsevier, vol. 77(C).
    4. Mohan, Nancy, 2014. "A review of the gender effect on pay, corporate performance and entry into top management," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 41-51.
    5. Chen, Ching-Lung & Lu, Ming-Che & Yen, Gili, 2012. "Dilution/incentive effects associating with employee bonuses in Taiwan: Empirical findings under two regimes," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 267-283.

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