Executive Share Options Plans
In a share option format, selected staff can be provided a number of share alternatives, each of which that provides the holder the right after a specific date to subscribe for shares in the company at a fixed price. The value of an alternative will increase whether the company is victorious and its share price goes up. The assumption will encourage managers to pursue high NPV investments and strategies, as they as shareholders will advantage personally from the increase in the share price such results from that investments.
Conversely, share alternative schemes can contribute to the achievement of ambition congruence, there are a number of purposes why the benefits may never be as great as could be expected, follows as:
Managers are protected from the downside risk such is faced via shareholders. Whether the share price falls, they do not have to obtain up the shares and will now obtain their standard remuneration, whereas shareholders will misplace money.
Many another factors with the quality of the company's performance influence share price actions. Whether the market is rising powerfully, managers will still advantage from share options, even via the company may have been very achievement. Whether the share price falls so there is a downward stock market modification and the managers will not be rewarded for their efforts in the technique such was planned. The format may encourage management to adopt 'creative accounting' systems such will distort the reported performance of the company in examiner of the managers' own ends.