The Valuation Differences Between Stock Option and Restricted Stock Grants for U.S. Firms

We examine the role of accounting in CEO equity compensation design. For a sample of ExecuComp firms in 1995–2001, we find that financial reporting concerns are positively related to stock option use and total compensation, and negatively related to the use of restricted stock. We confirm our findings by examining changes in CEO compensation in firms that begin expensing options in 2002 or 2003. We find that these firms reduce their option use and increase their restricted stock use after starting to expense options but exhibit no decrease in total compensation. Taken together, our analyses suggest that favorable accounting treatment for options led to a higher use of options and lower use of restricted stock than would have been the case absent accounting considerations.

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Stock option pay versus restricted stock: A comparative analysis of their impact on managerial risk-taking and performance extremeness

Strategic Organization ◽

10.1177/1476127018804159 ◽

2018 ◽

Vol 18 (2) ◽

pp. 301-329 ◽

Cited By ~ 2

Author(s):

Wanrong Hou ◽

Steve Lovett ◽

Abdul Rasheed

Keyword(s):

Comparative Analysis ◽

Risk Taking ◽

Stock Options ◽

Stock Option ◽

Large Sample ◽

Managerial Risk ◽

Ceo Tenure ◽

Restricted Stock ◽

And Performance ◽

Using Data

This study investigates how two stock-based incentives affect the risk-taking behavior of CEOs. We compare stock options and restricted stock in terms of their impact on the magnitude of investments and performance extremeness. We test our hypotheses using data for 23 years starting from 1993 for a large sample of S&P 1500 firms. Our results indicate that both stock option and restricted stock pay increase the magnitude of investments undertaken by CEOs, but that stock options have a much stronger effect. Also, stock option pay increases the likelihood of both big gains and big losses, but restricted stock reduces the likelihood of big losses. Finally, we find that as CEO tenure increases, the effects of stock-based compensation tend to diminish. Therefore, stock-based incentives appear to be a useful solution to the agency problem for short-tenured CEOs, but much less so for long-tenured CEOs.

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Restricted Stock is on the Rise: What Does this Mean for Whistleblowing?

Journal of Forensic Accounting Research ◽

10.2308/jfar-2020-017 ◽

2021 ◽

Author(s):

Andrea Scheetz ◽

Joseph Michael Wall ◽

Aaron Wilson

Keyword(s):

Agency Theory ◽

Stock Option ◽

Strike Price ◽

Private Companies ◽

Public Companies ◽

The Future ◽

Opposite Behavior ◽

Restricted Stock ◽

Option Compensation ◽

Stock Compensation

The use of restricted stock compensation to supplement or to give a bonus to executives is on the rise. What happens when things go wrong? Research finds that those in private companies are less likely to whistleblow than those in public companies overall. Literature also reveals that restricted stock may positively influence whistleblowing when large financial rewards are present. Further, vesting period and strike price influence whistleblowing for those with stock option compensation. Yet, little is investigated regarding whistleblowing related to the vesting period of the restricted stock and the type of organization -public or private- granting this compensation. We find that for those in public companies, whistleblowing tends to increase as the vesting period of the stock compensation is farther in the future. Those in private companies have the opposite behavior. Agency theory focused within whistleblowing theory helps resolve this seeming juxtaposition. Implications for practice and policy are offered.

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