Hands-Off Options

Editor’s Note: This post is from Jesse Fried of Harvard Law School.

Stock options have been at the heart of many of the corporate governance scandals over the last decade.  For example, managers’ ability to choose when to unwind their equity incentives encouraged them to manipulate earnings.  And executive influence over the timing of option grants led to backdating and springloading.  The problem is that executives have had too much control over when stock options are granted and when they are cashed out.

As I discuss in a recent Marketplace Radio commentary, one could substantially reduce managers’ influence over their options through the use of what I call “hands-off” options.  The text and audio of my commentary can be found here.

Since I am writing about “hands-off” options for a symposium piece on executive compensation, any comments would be most welcome.  You can reach me at jfried [at] law.berkeley.edu.

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