Question

1. Stock options are often a part of a senior executive’s compensation, but not a part of the compensation for a regular worker. Please explain why stock options might not be an attractive incentive for regular workers of a firm.

Answer 1

1.

Stock options are the incentive that brings ownership, rather than the quick cash. So, it is an attractive incentive for the senior executive as a part of their compensation so that they feel motivated when given the ownership in the company. It helps prevent the issues like agency conflict and senior executives give their best performance in decisions and work planning. So, stock option works for the senior executives.

Though, it is not attractive for the regular worker, as they expect to get cash reward that can fulfil their needs of lower level such as physiological needs and safety needs. But, these needs cannot be served by the stock options as it gives wealth in the long term. So, a stock option is not an attractive incentive for the regular workers. Further, regular workers are not in the position to make a strategic decisions, rather they follow the instructions. Hence, stock options are not a good incentive for them, rather it is better to give them a cash reward to regular workers.