|Title: Option Compensation and Industry Competition|
|Reference Number: 1176|
|Publication Date: August 2007|
| Author(s): |
Neal M. Stoughton
University of Calgary
Kit Pong Wong
The University of Hong Kong
Compensation policy has become one of the most important ingredients of corporate governance. In this paper we take a new look at the issue, by contrasting the use of options with that of pure stock. We do this by integrating the repricing or resetting aspect of options with that of industrial structure. We show that industry competition may play an important role in dictating which form
of compensation is optimal. When aggressive competition for key professional staff is an issue, the
flexibility of options may actually become a disadvantage and therefore pure stock compensation
may survive as an equilibrium. Thus compensation trends can be reconciled with trends in the nature of the competitive environment.
Published in Review of Finance 13 (January 2009), pp. 147-180.
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