Abstract
This paper considers deriving measures for assessing the benefits to firms as a result of granting executive stock option plans. The metrics developed relate to assessing the expected total earnings of the company attributed to executives due to executive stock option award. The paper derives metrics based on number of shares as well as on total value of assets. The values of these metrics can be used to compare and asses the benefits to the company in awarding stock option grants by comparing the metrics with actual realized changes in total earnings. The research work in the paper complements the empirical research of Murphy (1999) and others who found the pay-performance sensitivities due to executive stock option awards. Illustrations of the metrics are carried out to show their properties and in particular for the firm WAL-MART.
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