Executive stock options: Preliminary Australian evidence of shareholder wealth effects of pre-effort contracting

Abstract

The article discusses key issues related to Executive Stock Option Plans (ESOPs). In the United States, stock option award announcements usually coincide with other major announcements, particularly those relating to annual financial reports. In Australia, as in the United States, ESOPs grant discretion to a company's executive compensation committee concerning the timing of an award and sometimes the exercise or strike price. In a majority of cases the strike price is determined by reference to a formula specified in the ESOP. Typically, the strike price is set at the average closing stock price over a period of three to five days immediately preceding the award date, generating small award premiums or discounts relative to the closing stock price on the award date.