Stock Market’s Rise May Be Producing Crop of Very Cautious CEOs, Study of Stock Options Suggests

With the stock market surge over the past several years, executive stock options awarded near the bottom of the market are worth small – or not so small – fortunes. How does this affect the way CEOs run their companies? A hefty increase in options’ paper value may lead to sharp decrease in risk-taking

April 25 2013 by

He adds: “After starting out as a cause celebre on behalf of strong executive leadership, stock options have lately come under a cloud for supposedly encouraging executive recklessness. In fact, the reality is more complex than either of these views would suggest. Our study concludes with a plug for straight-out stock grants as a safer alternative than options; still, there is no reason options cannot continue to be a useful tool provided boards strike the right balance between current and prospective wealth, a balance that will vary, depending on appropriate level of risk, from industry to industry and even from company to company.

“In short, this is a matter requiring active and continuing board involvement. Whether that happens in most companies — or whether boards simply take their cues from what other firms are doing — is another matter.”

The study, “ Executive Stock Options as Mixed Gambles: Revisiting the Behavioral Agency Model,” is in the April issue of the The Academy of Management Journal. a peer-reviewed publication published every other month by the Academy, which, with more than 18,000 members in 110 countries. The Academy’s other publications are the The Academy of Management Review, The Academy of Management Perspectives, and Academy of Management Learning and Education