John Core & Wayne Guay (1999). The use of equity grants to manage optimal equity incentive levels effectively?

The use of equity grants to
manage optimal
equity incentive levels
John Core & Wayne Guay (1999)

, Main Questions of the Article
The paper investigates how rms use annual grants of stock options and
restricted stock to CEOs.

Primary question - do the rms use them as a tool to manage the optimal level of
equity incentives?

Particular questions:

1. How do rms establish CEO equity incentives (what are the main factors) and
how do rms adjust them if there are some deviations from the optimal levels?

2. Do rms use equity grants as a substitution for cash-based compensation?



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, Motivation of the Authors
The study is built on previous Previous research, for example,
studies, such as Jensen and Yermack (1995) and Ofek and
Meckling (1976) and Demsetz Yermack (1997), gave a mixed
and Lehn (1985). These earlier answers to the question - how
works showed that optimal rms actually grant equity
CEO equity ownership levels incentives and is it consistent
are connected with rm’s with the theory of optimal
characteristics, such as size, contracting or not?
growth opportunities, and
monitoring costs.

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