Is the Stock Option Effective to Maintain Key Management? Evidence from Indonesia Listed Companies

Abstract

Management stock option is a form of compensation which has a hypothetical function to maintain key management, that in the end, the goal is improving company performance. This study aims to prove the hypothesis using Indonesia listed companies' data over the 2012-2016 period. The turnover rate measures management retention. The effectiveness of management stock options is examined during the vesting and exercised period, while management stock options are measured in three ways, i.e., a dummy of the existence of stock option, the amount of stock option, and the number of shares that are offered as stock options. Management stock options are found limited in Indonesia listed companies. Overall, the results showed that granting management stock options are only useful in retaining the management only during the vesting period. This study contributes to the remuneration and nomination committee in regulating the optimal management stock options.