Sunday, February 10, 2008
Hands-Off Options, by JESSE M. FRIED, University of California, Berkeley - School of Law, was recently posted on SSRN. Here is the abstract:
Despite recent reforms, public company executives can still use inside information to time their stock sales, secretly boosting their pay. They can also still inflate the stock price before selling. Such insider trading and price manipulation imposes large costs on shareholders. This paper suggests that executives' options be cashed out according to a pre-specified, gradual schedule. These hands-off options would substantially reduce the costs associated with current equity arrangements while imposing little burden on executives.