 Stock options, restricted stock, salary, or bonus? Managing CEO compensation to maximize organizational performanceSteve Lovett, Abdul A. Rasheed and Wanrong Hou Business Horizons, 2022, vol. 65, issue 2, 115-123 Abstract: CEO pay has gone through remarkable changes over the past two decades. The most striking new features have been the increased use of stock options in the early 2000s, and of restricted stock since then. Both forms of stock-based compensation are intended to resolve the agency problem that occurs when CEOs do not act in the best interests of stockholders, but each has its advantages and limitations. In this instalment of Organizational Performance, we discuss the history of their use and similarities and differences between the two, and argue that both are often overused. Bonuses based on strategic goals, on the other hand, may be underused. We conclude with a contextual approach to guide boards of directors in making choices among the forms of CEO compensation—stock options, restricted stock, salary, and bonus—to incentivize CEOs to work toward maximizing organizational performance. Briefly, stock options are most appropriate for growth firms, and restricted stock for stable firms. Both forms of stock-based compensation are more appropriate for new than for long-tenured CEOs. Keywords: CEO compensation; Agency theory; Stock-based pay; Stock options; Restricted stock; Organizational performance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:bushor:v:65:y:2022:i:2:p:115-123 DOI: 10.1016/j.bushor.2021.02.041 Access Statistics for this article Business Horizons is currently edited by C. M. Dalton More articles in Business Horizons from Elsevier |
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