Question

Currently, stock options are a major part of most top executive’s pay package. People in favor consider stock options an excellent incentive; after all, the executive is rewarded only if the value of the corporation’s stock goes up. Detractors see stock options as a bad deal; after all, the executive gets rewarded if the stock goes up for whatever reason, even if that reason is completely unrelated to his/her performance.

For this discussion you are required to do some independent research on the topic of stock option compensation and then using and referencing your research, answer the following four questions:

1. As a shareholder, how do you feel about making stock options a significant part of top management’s compensation? Why?

2. As a top manager, how do you feel about stock options being offered as a significant part of your compensation? Why?

3. As a shareholder, how do you feel about the fact that top managers’ compensation is significantly offered in stock options, but not that of other employees? Why?

4. As an entry-level or mid-management employee, how would you feel if a part of your compensation were offered in stock options? Why?

Answer 1

1. As a shareholder, how do you feel about making stock options a significant part of top management’s compensation? Why?

As a shareholder , I would feel justified about stock options being a part of management's compensation :

a. Cash stays inside the company for reinvestment, so stock investment is lighter on the cash flows.

b. Management would be motivated to work on shareholder wealth maximization since now they have skin in the game.

c. It is a more democratic system, when employees who drive growth are given stock options.

2. As a top manager, how do you feel about stock options being offered as a significant part of your compensation? Why?

a. It should motivate me since i'm offered ownership.

b. Cash might be spent away while stock can be set aside for investment appreciation, yileding windfall gains.

c. Efforts are appreciated in kind, and not just in cash .

3. As a shareholder, how do you feel about the fact that top managers’ compensation is significantly offered in stock options, but not that of other employees? Why?

a. In this case it is slightly unequal .

b. Top management can decide the rules enriching themselves but not equally hardworking lower rung of the employees.

c. This may lead to disgruntlement and quality staff leaving, and hamper progress.

d. Unjustified in the ethical sense, since stock options (as a percentage of their total salary) should be offered across board.

4. As an entry-level or mid-management employee, how would you feel if a part of your compensation were offered in stock options? Why?

a. I would feel valued, since entry level employees seldom get bonus.

b. Would push the employee to work harder and take more ownership.

c. Might appreciate bonus in cash at times, since the entry level jobs dont pay that high.