Northwestern University >
Kellogg School of Management - Center for Mathematical Studies in Economics and Management Science, Northwestern University >
Discussion Papers, Kellogg School of Management, Northwestern University >
Please use this identifier to cite or link to this item:
| || |
|Title:||Stock options and chief executive officer compensation |
|Authors:||Armstrong, Christopher S.|
Larcker, David F.
|Issue Date:||2007 |
|Series/Report no.:||Discussion paper // Center for Mathematical Studies in Economics and Management Science 1447|
|Abstract:||Although stock options are commonly observed in chief executive o±cer (CEO) compensation contracts, there is theoretical controversy about whether stock options are part of the optimal contract. Using a sample of Fortune 500 companies, we solve an agency model calibrated to the company-specific data and we find that stock options are almost always part of the optimal contract. This result is robust to alternative assumptions about the level of CEO risk-aversion and the disutility associated with their effort. In a supplementary analysis, we solve for the optimal contract when there are no restrictions on the contract space. We find that the optimal contract (which is characterized as a state-contingent payoff to the CEO) typically has option-like features over the most probable range of outcomes.|
|Document Type:||Working Paper|
|Appears in Collections:||Discussion Papers, Kellogg School of Management, Northwestern University|
Download bibliographical data as:
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.