Willingness-to-Comply and the Effectiveness of Legal Processes for Equity-Based Incentives

Abstract

At the present time and in most developed countries, EBIs/ESOs are regulated by a myriad of laws at the local, state and federal levels. This introduces complexity and conflicts, and greater transaction costs, and opportunities for forum shopping and regulatory arbitrage. This article: a) analyzes the efficiency of legal processes for misconduct pertaining to Non-Common-Stock Equity-Based Incentives (EBIs); and also introduces new theories pertaining to the degree of government regulation of EBIs; b) introduces new models and the theory of Willingness-to-Comply for Equity-Based-Incentives (EBIs).The major findings of this study are that: a) its most efficient to regulate EBIs with one set of laws and a combination of civil and criminal laws; b) the degree of government regulation of EBIs and the penalty regime (criminal or civil) for illegal activities in EBI-related matters should be variable and should depend on several key factors such as company size and employee tenure.