Exercise-price policy is perhaps the central design issue regarding nontradable Executive Stock Options (ESO). In this paper, we give the value line of ESO, V(P), and the range of the incentive-maximizing exercise pri...Exercise-price policy is perhaps the central design issue regarding nontradable Executive Stock Options (ESO). In this paper, we give the value line of ESO, V(P), and the range of the incentive-maximizing exercise prices which is defined as the exercise prices that generate incentives, εn(P)/εP, within 1 percent of the maximum using the “certainty equivalence” approach, similar to that adopted by Richard Lambert et al.. Our results show that, holding constant the company's cost of making an option grant, incentives are maximized by setting exercise prices within a range that typically includes the grant-date market price.展开更多
文摘Exercise-price policy is perhaps the central design issue regarding nontradable Executive Stock Options (ESO). In this paper, we give the value line of ESO, V(P), and the range of the incentive-maximizing exercise prices which is defined as the exercise prices that generate incentives, εn(P)/εP, within 1 percent of the maximum using the “certainty equivalence” approach, similar to that adopted by Richard Lambert et al.. Our results show that, holding constant the company's cost of making an option grant, incentives are maximized by setting exercise prices within a range that typically includes the grant-date market price.
