Many firms pay their top executives with stock options, which give them the right to purchase shares
Question:
Many firms pay their top executives with stock options, which give them the right to purchase shares in the company at a fixed price. When the firm does well, the value of the stocks increases, and hence the value of the options increases. Moreover, the income they obtain this way receives capital gains treatment. Some critics of stock options claim that similar incentive effects can be obtained by tying executives' pay to the performance of the stock, but that paying executives directly has overall favorable tax consequences, once all taxes-including corporate taxes, the taxes paid by executives, and the taxes of shareholders-are taken into account. Discuss. (When the company pays executives directly, the wages are deductible from the firm's income subject to the corporate income tax; the "costs" of stock options are not deductible.)
Step by Step Answer:
Economics Of The Public Sector
ISBN: 9780393925227
4th Edition
Authors: Joseph E. Stiglitz, Jay K. Rosengard