Executive compensation packages have long been known to influence CEO behavior. Many have studied, for example, how different forms of compensation affect business outcomes from increased risk-taking and innovation to greater acquisitions and divestitures.

Giving a CEO too many stock options can make a company perform worse — Quartz

However, these outcomes are not always positive. Compensation has also been linked to drastically harmful events. And BP CEOs Lord Browne and Tony Hayward received large, high-powered executive compensation packages right before the notorious oil spills that each respectively oversaw.

For many executives, the bulk of their compensation comes in the form of equity compensation, which includes both stock options and stock awards. The ratio ranges from 0 all equity compensation is in the form of stock to 1 all equity compensation is in the form of options.

Executive Stock Options

I analyzed the top 1, U. In sum, higher-powered incentives can increase both good and bad risk-taking.

Further research should explore what other potential bad outcomes e. It would also be helpful to be able to simultaneously estimate both positive and negative effects of incentives to get a sense of relative magnitudes, which would help us understand better when compensation in the form of options should be increased or decreased.

A Guide To CEO Compensation

And because I only explored the largest of U. Dylan Minor holds an assistant professorship at the Kellogg School of Management.

Professor Minor received his PhD in business administration from UC Berkeley. His research explores the nexus between organizations and social and ethical issues. Your Shopping Cart is empty.

But CEOs with actual stock are better behaved. About Us Careers Privacy Policy Copyright Information Trademark Policy Harvard Business Publishing:. Harvard Business Publishing is an affiliate of Harvard Business School.