Stock Options and Incentive Equilibrium Between Managers and Shareholders: The French Case

Abstract

Stock options plans are used to increase managerial incentives. The main question is to determine whether there exists an optimal incentive contract, which means a contract satisfying both managers and shareholders. First, the cash-flow gain created by the managers' effort is supposed known by both shareholders and managers, then the equilibrium is studied within a process of negotiation. The uncertain case introduces a possible information asymmetry between the two partners and an uncertainty concerning the valuation of the share at the initial date by shareholders and managers due to a noise in the market.