Stock incentive plans in Europe: Empirical evidence and design implications

Corporate Ownership and Control

Volumn 4, Issue 4 A, 2007, Pages 70-79

  Zattoni, Alessandro ^a  

^a UNIVERSITY OF NAPLES PARTHENOPE   (Italy)

Author keywords

Corporate governance; Europe; Shareholders; Stock incentive plans

Indexed keywords

EID: 62249110811     PISSN: 17279232     EISSN: 18103057     Source Type: Journal    
DOI: 10.22495/cocv4i4p5     Document Type: Article

References (33)

1. S.S. Rodrick (edited by), The stock options book, NCEO, Oakland, 2000.
2. M. Jensen and K.J. Murphy, Performance pay and top-management incentives, Journal of Political Economy, 98, 1990: 225-264.
3. M. Jensen and K.J. Murphy, CEO incentives-It's not how much you pay, but how, Harvard Business Review, May-June, 1990: 138-153.
4. L.R. Gomez-Mejia, G. Paulin and G. Grabke, Executive compensation: research and practical implications, in: G.R. Ferris, S.D. Rosen and D.T. Barnum (edited by), Handbook of Human Resource Management.
5. Blackwell Business, Cambridge, 1995.
6. Towers Perrin, Equity incentives around the world, 2005.
7. Price Waterhouse Coopers, Human Resource Services-Global Equity Survey, 2003.
8. W. Bernhardt, Stock options for or against shareholder value?-New compensation plans for top management and the interests of the shareholders, Corporate Governance-An International Review, 7, 1999: 123-135.
9. A. Alcouffe and C. Alcouffe, Executive compensation-setting practices in France, Long Range Planning, 33, 2000: 527-543;
10. A. Zattoni, Stock incentive plans in Italy: diffusion and characteristics, working paper, 2005.
11. M.J. Conyon, S.I. Peck, L.E. Read and G.V. Sadler, The structure of executive compensation contracts: UK evidence, Long Range Planning, 33, 2000: 478-503.
12. Z. Bodie, R. Kaplan and R. Merton, For the last time: stock options are an expense, Harvard Business Review, March, 2003: 63-71.
13. W. Sahlman, Expensing options solves nothing, Harvard Business Review, December, 2002.
14. R.S. Kaplan and K.G. Palepu, Expensing stock options: a fair-value approach, Harvard Business Review, December, 2003: 105-108.
15. B.J. Hall and K.J. Murphy, The trouble with stock options, working paper, NBER, June, 2003.
16. E.E. Lawler, Rewarding Excellence, Jossey-Bass, San Francisco, 2000.
17. R. Weeden, E. Carberry, and S.S. Rodrick, Current Practices in Stock Option Plan Design, NCEO, Oakland, 2000.
18. A. Berle and G. Means, The Modern Corporation and Private Property, New York, MacMillan, 1932.
19. C. Holderness, R. Krozsner and D. Sheehan, Were the good old days that good? Changes in managerial stock ownership since the great depression, Journal of Finance, 54, 1999: 435-471.
20. B.J. Hall, What you need to know about stock options, Harvard Business Review, March-April, 2000: 121-129.
21. F. Barca and M. Becht (edited by), The control of corporate Europe, Oxford University Press, Oxford, 2001.
22. P. Brandes, R. Dharwadkar and V. Lemesis, Effective employee stock option design: reconciling stakeholder, strategic, and motivational issues, Academy of Management Executive, n.1, 2003: 77-93.
23. Some studies have shown that employees sell their stock immediately after purchasing it by exercising their stock options. This tendency is especially noticeable when employees own sizeable packets of stock options yet to be exercised, since in such cases their overriding aim is to balance their financial portfolio. E. Ofek and D. Yermack, Taking stock: equity based compensation and the evolution of managerial ownership, Journal of Finance, 55, 2000: 1367-1384.
24. A. Rappaport, New thinking on how to link executive pay with performance, Harvard Business Review, March-April, 1999: 91-101.
25. C. Rosen, J. Case and M. Staubus, Every employee an owner. Really, Harvard Business Review, June, 2005: 1-8.
26. Granting a high number of options or shares to employees can lead to the so-called Microsoft problem, i.e. if the share price rises too much, holders may become so rich they won't need to work anymore.
27. C. Baden-Fuller, Editorial on executive compensation in Europe, Long Range Planning, 33, 2000:475-477.
28. B.J. Hall, The pay to performance incentives of executive stock options, working paper, NBER, August, 1998.
29. To achieve the same outcome with a plan that grants stock to employees, stock should not be rewarded until the end of the timeframe in question, that is, when the company can ascertain how much progress has actually been made toward reaching pre-set goals. In this way, the two types of plans tend to give rise to fairly comparable results.
30. To avoid the risk of this aversion to distribution of profits, the SIP should explicitly take into account the size of the dividend awarded to allocate to shareholders in order to decide on compensation. For example, the exercise price could be modified on the basis of value shares would lose due to the distribution of wealth to shareholders.
31. L.A. Bebchuk, J. Fried and D. Walker, Executive compensation in America: optimal contracting or extraction of rents?, NBER, working paper, December, 2001.
32. L.A. Bebchuk, J. Fried and D. Walker, Managerial power and rent extraction in the design of executive compensation, NBER, working paper, July, 2002.
33. J.C. de Swaan and N. Harper, Getting what you pay for with stock options, McKinsey Quarterly, n.1, 2003.