market for corporate control Free Essay, Term Paper and Book Report
Methods used to combine managers¡¯ behavior to shareholders: ¡°managers receive pecuniary incentives to maximize firm value from stock ownership, stock option plans and adjustments in salary based performance¡± (Richard A. De Fusco; Robert R. Johnson and Thomas S. Zorn, 1990).
- Stock option plans, known as Executive Stock Options (ESOs), have been widely adopted as a method that ameliorates the agency problems which exist between managers and shareholders. Under the typical stock option plan, executive is granted the option to purchase a number of shares of common stock at a stated exercise price. This price is generally equivalent to the market value of the stock on the date of the grant. ESOs differ from listed options in that before the options can be exercised, there is usually a minimum holding period required. Furthermore, the options are strictly nonmarketable and are long-term in nature (typically ten years) (Richard A. DeFusco; Robert R. Johnson; Thomas S. Zorn, 1990). In the absence of stock options, managers may be over-concerned about job security so as to be ave......
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