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Study Completed: 2010
College of Business
An investigation into optimal stock option compensation
Mr Lai investigated the practice of stock option compensation, including its historical development, in addition to theoretically and empirically testing whether such practice has been optimal. Historically, heavy usage of stock option compensation has purportedly led to the rise of companies such as Apple, Intel and Microsoft, as well as the collapse of both major financial institutions in the recent credit crisis and fraudulent companies such as Enron and Worldcom. Although many theoretical models propose recent usage has been excessive, Mr Lai developed a holistic optimization model which suggests that those levels of stock option compensation may have in fact been optimal. Interestingly, empirical research into the motivations behind stock option compensation practice has indicated that compensation may have been high due to their preferential accounting treatment, rather than because of the fundamental economic costs and benefits identified in Mr Lai’s theoretical model.
Prof Martin Young
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Last updated on Tuesday 04 April 2017