earticle

영어

The executive stock options indexed to the market are useful as a compensation scheme in that the indexed options protect shareholders from rewarding executives excessively during market upturns. Despite the usefulness of indexed options, most of the large ¯rms in the US have not granted an indexed option. According to academic researches on executive stock options, the probability of expiring in the money is too small to o®er risk- averse executives incentives to work more e±ciently. This paper develops a new indexed option model and explores the incentive e®ects. While there is a similar indexation feature between the existing indexed options and the new one, a di®erent payo® structure has a signi¯cant in°uence on option values and incentive e®ects. We show that the new indexed option has the higher probabilities of expiring in the money and increases incentive e®ects relative to the existing one.