Conservative Economic Commentary | Topic: Executive Stock Options

Subject: executive stock options

An employee stock option is a call option on the common stock of a company, issued as a form of non-cash compensation. Restrictions on the option (such as vesting and limited transferability) attempt to align the holder’s interest with those of the business’ shareholders. If the company’s stock rises, holders of options generally experience a direct financial benefit. This gives employees an incentive to behave in ways that will boost the company’s stock price.
Employee stock options are mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation. Alternatively, employee-type stock options can be offered to non-employees: suppliers, consultants, lawyers and promoters for services rendered. Employee stock options are similar to warrants, which are call options issued by a company with respect to its own stock. (Wikipedia Jan 2010)

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The dead Efficient Market Hypothesis has left behind much harmful junk in financial space

Eventually, at some point, without an efficient market, common stocks become mere baseball cards.

Sooner or later, some Baby Boomer, pressed to pay his bills in retirement, will find that one can’t live off the dividends of common stock and that when everyone is trying to cash out their holdings at the same time, market prices plunge to levels that seemed inconceivable for generations. But it will simply be the cost of allowing an inefficient market to flourish for so long.

This article discusses the concept of inefficient markets and the practical consequences.

More » The Inefficient Market Hypothesis