Are Stock Options the Managers' Blessing? Stock Option Compensation and Institutional Controls

Matthias Benz, Marcel Kucher and Alois Stutzer

No 61, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: Stock option grants to top managers have largely contributed to the dramatic increase in US executive pay in recent years. In this paper it is argued that stock options, compared to other forms of compensation, have created strong incentives for managers to engage in lobbying activities for higher compensation. The empirical results presented for the S&P 500 firms and the years from 1992 to 1997 show that the relative success of such skimming activities is shaped by institutional controls. Stock option grants are substantially lower when control by the board of directors and the shareholders is higher, and competition on the product market of a firm is stronger.

Keywords: managerial compensation; stock options; corporate governance (search for similar items in EconPapers)
JEL-codes: G3 J3 L2 M1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
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