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

For years, agency theorists have argued that the use of long-term compensation tools such as stock options are effective mechanisms for aligning management's interests with those of shareholders. Although a number of publications have explored the role of stock options in incentive compensation...

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Bibliographic Details
Published in:Academy of Management journal 2002-12, Vol.45 (6), p.1172-1182
Main Authors: Pollock, Timothy G, Fischer, Harald M, Wade, James B
Format: Article
Language:English
Subjects:
Chief executive officers
Executive compensation
Executives
Firm theory
Managers
Options on stocks
Power
Pricing
Spread
Stock options
Stock prices
Studies
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Summary:For years, agency theorists have argued that the use of long-term compensation tools such as stock options are effective mechanisms for aligning management's interests with those of shareholders. Although a number of publications have explored the role of stock options in incentive compensation, relatively few studies have examined issues such as how, when, and why stock options get repriced. This paper explores how CEO power affects the repricing of executive options. The spread between an option's exercise, or strike, price, and the market value of a stock impacts the likelihood of repricing. This effect is enhanced when the CEO of the firm in question is also the chairman of its board. Firm and CEO visibility, more board members appointed after a CEO's hiring than before it, a staggered board, and relatively high percentages of CEO and institutional ownership reduce the impact of the spread on the likelihood of repricing.
ISSN:0001-4273
1948-0989
DOI:10.5465/3069432