TY  - JOUR
AU  - Hall,Brian J.
AU  - Murphy,Kevin J.
TI  - The Trouble with Stock Options
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9784
PY  - 2003
Y2  - June 2003
UR  - http://www.nber.org/papers/w9784
L1  - http://www.nber.org/papers/w9784.pdf
N1  - Author contact info:
Brian Hall
Harvard Business School
Baker Library 185
Boston, MA  02163
Tel: 617/495-5062
Fax: 617/496-7379
E-Mail: bhall@hbs.edu

Kevin M. Murphy
Booth School of Business
The University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL  60637
Tel: 773/702-7280
Fax: 773/834-3554
E-Mail: murphy@chicagoBooth.edu
AB  - The trouble with options is that too many options are granted to too many people. Most options are granted below the top-executive level, and options are often an inefficient way to attract, retain and motivate executives and (especially) lower-level employees. Why, then, are options so prevalent? We discuss several explanations including changes in corporate governance, reporting requirements, taxes, the bull market and managerial rent-seeking. We also offer an alternative hypothesis that we believe explains the over-use of options and several apparent puzzles: boards and managers falsely perceive stock options to be inexpensive because of accounting and cash-flow considerations.
ER  -