CEO stock options: The impact of pre-awarded CEO stock ownership and plan and award conditions
Date
2006
Authors
Canil, J.
Rosser, B.
Editors
Emery, D.
Advisors
Journal Title
Journal ISSN
Volume Title
Type:
Conference paper
Citation
Proceedings of the 2006 FMA Annual Meeting, 2006 / Emery, D. (ed./s), pp.www1-www20
Statement of Responsibility
Jean M. Canil and Bruce A. Rosser
Conference Name
FMA Annual Meeting. Conference (2006 : Salt Lake City, Utah)
Abstract
This paper provides fresh evidence on CEO stock option awards. We identify several contracting conditions that are applied at either plan adoption or a subsequent award. We show empirically that option awards cannot be evaluated without controlling for CEO pre-award stock ownership. Although options potentially augment CEO incentive, they may not when the stock position is large relative to the award size. We also find that option grants are most successful from a shareholder perspective when awards occur within the top quartile of awarded options/pre-award stock, particularly when the award is made at a discount to market in tandem with vesting requirements. Empirical analysis of CEO stock option awards requires more complete specification of contracting variables than generally exhibited in the extant empirical literature. Of the contracting conditions studied, those having the most important incentive and hence wealth consequences are stock dividend protection, vesting requirements, award discounts/premiums and term to expiry.