Performance-vested stock options and interest alignment

Yu Flora Kuang and Bo Qin

The British Accounting Review, 2009, vol. 41, issue 1, 46-61

Abstract: This paper investigates the effects of performance-vested stock options (PVSOs) in aligning management interests and shareholder wealth. Using 4238 executive-level observations for 1383 executive directors from the largest 244 UK non-financial firms over the 1999–2004 period, we find that the use of PVSO schemes in executive compensation contracts is associated with greater interest alignment. The evidence also shows that PVSOs outperform traditional stock options (TSOs) in providing incentives. Moreover, the results suggest that difficult vesting targets negatively affect managers' choice of effort, resulting in the divergence of managers' and shareholders' interests.

Keywords: Stock options; Pay-performance sensitivity; Equity incentive (search for similar items in EconPapers)
JEL-codes: G31 G34 G39 M41 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:41:y:2009:i:1:p:46-61

DOI: 10.1016/j.bar.2008.10.001

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