Altering the Terms of Executive Stock Options

What Drives Executive Stock Option Backdating?

“…We estimate firm age by calculating the difference between the first year in which the firm has data in Compustat and the option grant year. Consistent with the option repricing literature (e.g., Chance et al, 2000;Brenner et al, 2000;Carter and Lynch, 2001;Chidambaran and Prabhala, 2003), we expect that smaller and younger firms have a higher tendency for option backdating for retention purposes.…”

“…For instance, Carter and Lynch (2001) study 263 repricing firms in 1998. Chidambaran and Prabhala (2003) examine 213 repricing events between 1992 and 1997 while Brenner et al (2000) analyze 133 repricings between 1992 and 1995. 9 Chen (2004) follows Core and Guay (1999) and uses the average imputed moneyness of managers' stock option portfolios to study option repricing of 108 firms from 1994 to 1998.…”

Australian CEO Remuneration*

“…These companies must pay a competitive salary to attract and hold a suitable CEO (Oyer, 2004;Rajgopal et al, 2006). Yet, there is always the question of whether the CEO is being paid for luck or for skill (Bertrand and Mullainathan, 2001;Garvey and Milbourn, 2006) and whether the remuneration package deals with poor performance in a responsible manner (Brenner et al, 2000). In this sample larger companies show a preference for market-based remuneration and this is consistent with optimal contracting theory (Jensen and Meckling, 1976).…”

Executive Stock Options: Early Exercise Provisions and Risk-taking Incentives

“…6 Out-of-the-money "underwater" options do have incentive effects: They may make the manager take on excessive risk as he seeks to pull them back into-the-money or, conversely, they may lose all incentive value whatsoever as their value to a risk-averse manager becomes insignificant. Recent papers(Brenner, Sundaram, and Yermack (2000),Acharya, John, and Sundaram (2000)) consider repricing options and we do not contribute further to that debate.…”