The `repricing’ of executive stock options

The Role of Power and Politics in the Repricing of Executive Options.

“…Although a numher of puhlications have explored the role of stock options in incentive compensation (see Gomez-Mejia & Wiseman [1997] and Murphy [1998] for reviews of the literature in this area), relatively few studies have examined issues such as how, when, and why stock options get repriced (e.g., Brenner, Sundaram, & Yermack, 2000;Carter & Lynch, 2001;Chance, Kumar & Todd, 2000). Option repricing occurs when a hoard of directors elects to either adjust the exercise price (also known as the strike price) of an executive's existing options downward, or to cancel an executive's existing options and grant him or her new options with a lower strike price.…”

“…This study was funded with a grant from the UW-Madison School of Business Research Committee. nies argue that option repricing ultimately henefits shareholders (Chance et al, 2000), investors generally view repricing negatively and consider it to he "rewarding failure" (Byrne, 1998;Martinez, 1998).…”

“…Since option repricing can he considered a hreakdown in the agency relationship (Chance et al, 2000), we moved heyond traditional agency explanations and explored how CEO power, the power of outside stockholders, and the visibility of a company and its CEO enhance or reduce the likelihood that option repricing will occur. In this study, we pursued a finer-grained approach than has previous research, which has typically relied on analyses over annual intervals (e.g., Brenner et al,, 2000;Carter & Lynch, 2001;Chance et al, 2000). Instead, we used monthly observations examining how the power of a CEO interacts with the difference between the average strike price of options and the current market price of its stock (what we hereafter refer to as the "negative spread") to impact the decision to reprice.…”

Should Executive Stock Options be Abandoned?

“…Ultimately, therefore, it is an empirical question whether option resetting is indeed a bad thing. Empirical evidence as to the benefits and costs of resetting is not conclusive: resetting is more likely in firms with greater agency problems, and tends to occur following poor firm-specific performance without significant follow-up gains (Brenner et al, 2000;Chance et al, 2000); resetting is more likely in young, high-tech firms operating in competitive labour markets (Carter and Lynch, 2001); firms that restrict resetting are more vulnerable to 8 Using the US data on 50 firms accused of accounting fraud by the SEC during 1996-2003, Erickson et al (2004) report a positive correlation between the likelihood of accounting fraud and the proportion of stockbased compensation. 9 In 1999, an average pay of CEO in large US companies was about 475 times that of an average manufacturing worker, an increase by almost a factor of 10 compared to three decades earlier (Towers Perrin; Standard and Poor's).…”

Dampak Struktur Modal Pada Sensitivitas Penerapan Kompensasi Opsi Saham Karyawan Terhadap Kinerja

“…Program ini telah digunakan secara luas dalam perencanaan dan kompensasi oleh perusahaan-perusahaan yang terdaftar di pasar modal (Chance et al, 2000). Pengadopsian program opsi saham diharapkan dapat mempersempit problem keagenan dan sekaligus menumbuhkan komitmen dan kontrol para eksekutif/karyawan kepada perusahaan.…”