We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Optimal Incentive Contracts for Loss-Averse Managers: Stock Options versus Restricted Stock Grants.
- Authors
Dodonova, Anna; Khoroshilov, Yuri
- Abstract
This paper provides an explanation for the widespread use of stock option grants in executive compensation. It shows that the optimal incentive contract for loss-averse managers must contain a substantial portion of stock options even when it should consist exclusively of stock grants for “classical” risk-averse managers. The paper also provides an explanation for the drastic increase in the risk-adjusted level of CEO compensations over the past two decades and argues that more option-based compensation should be used in firms with higher cash flow volatility and in industries with a higher degree of heterogeneity among firms.
- Subjects
CORPORATE finance; COMPENSATION management; LABOR incentives; RISK aversion; EMPLOYEE stock options; RESTRICTED stock options
- Publication
Financial Review, 2006, Vol 41, Issue 4, p451
- ISSN
0732-8516
- Publication type
Article
- DOI
10.1111/j.1540-6288.2006.00153.x