Executive Stock Option Repricing: Retention and Performance Reconsidered Harvard Case Solution & Analysis

Revaluation of stock options - that are reset when the exercise price falls below the current trading price of the shares of the company - is a controversial tactic. Critics say that the revaluation is equivalent rewarding failure management firms to provide the level of stock prices, which is more than the strike price of options. The arguments of supporters, however, reflect a common theme - the mood, usually expressed in revaluation firms proxy materials: revaluation helps preserve of CEOs and senior management teams and, derivatively, the financial indicators of the company. Analysis of these diametrically opposed views provides no support for the view that changes in interest rates or promotes retention or firm financial performance. In fact, the overestimation is associated with elevated levels of CEO and TMT turnover. In addition, there is no evidence that changes in interest rates related to the financial performance of the company. "Hide
by Catherine M. Daily, Travis C. Certo, Dan R. Dalton Source: California Management Review 17 pages. Publication Date: July 1, 2002. Prod. #: CMR232-PDF-ENG

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