The Trouble with Stock Options / Brian J. Hall, Kevin J. Murphy.

By:

Hall, Brian J

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w9784.Publication details: Cambridge, Mass. National Bureau of Economic Research 2003.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The trouble with options is that too many options are granted to too many people. Most options are granted below the top-executive level, and options are often an inefficient way to attract, retain and motivate executives and (especially) lower-level employees. Why, then, are options so prevalent? We discuss several explanations including changes in corporate governance, reporting requirements, taxes, the bull market and managerial rent-seeking. We also offer an alternative hypothesis that we believe explains the over-use of options and several apparent puzzles: boards and managers falsely perceive stock options to be inexpensive because of accounting and cash-flow considerations.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w9784 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w9781 Welfare Reform, Labor Supply, and Health Insurance in the Immigrant Population /	nber w9782 The Married Widow: Marriage Penalties Matter! /	nber w9783 House Prices and Consumer Welfare /	nber w9784 The Trouble with Stock Options /	nber w9785 The Optimal Taxation of Unskilled Labor with Job Search and Social Assistance /	nber w9786 Government Finance in the Wake of Currency Crises /	nber w9787 Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization /	Next

June 2003.

The trouble with options is that too many options are granted to too many people. Most options are granted below the top-executive level, and options are often an inefficient way to attract, retain and motivate executives and (especially) lower-level employees. Why, then, are options so prevalent? We discuss several explanations including changes in corporate governance, reporting requirements, taxes, the bull market and managerial rent-seeking. We also offer an alternative hypothesis that we believe explains the over-use of options and several apparent puzzles: boards and managers falsely perceive stock options to be inexpensive because of accounting and cash-flow considerations.